Introduction€¦ · Web view2021. 8. 6. · You don’t really, you know you don’t have a product. You’re not Coca Cola. You don’t have a sense of who you are, you know,

INSTITUTE OF REAL ESTATE

MODULAR SCHEME

MSc Real Estate

BT7008 RESEARCH PROJECT2019

Do green buildings benefit from substantial risk premium advantages compared to non-green buildings?

Kxxxxx

Kxxxxxx Research Project BT7008

I. Declaration

I hereby declare that this research project is my own work and it has not been submitted

elsewhere. All content of this project is for educational purposes only. Where any other

sources have been used, they have been acknowledged and fully referenced using the

Harvard Referencing system.

I have read and understood Kingston University’s guidelines.

Word Count: 14,725

Page 1 of 73


II. Abstract

K0417505

MSc Real Estate

BT7008 Research Project

Submission Date: 22.08.2019

Title: Do green buildings benefit from substantial risk premium advantages compared to

non-green buildings?

Abstract

As awareness of climate change increases, investors have seen a rise in demand for green

investment. Sustainability is now high on the agenda for property investors. Numerous

studies have been undertaken to identify the advantages of green buildings to ascertain

whether they benefit from advantages such as higher rents and higher capital values, for

example. This study aimed to build on existing research by exploring investor attitudes on

the advantages of green buildings over non-green buildings, whether these advantages

reduce risk and if investors consider this reduced risk to lead to a reduced risk premium.

In order to gain further insight into this topic a detailed review of literature was undertaken

followed by data collection, which was carried out in two phases. In phase one data was

collected through surveys, the findings of which were analysed and used to identify key

themes which were discussed with the interviewees in phase two. The respondents targeted

for the data collection were decision makers on property investment, such as fund

managers.

The key theme across the findings is the difficulty in quantifying the value of the intangible

benefits of green buildings. Although most the of respondents and interviewees intuitively

felt there is an argument in favour of green buildings, it is difficult to attach a value to, and as

a result, very difficult to estimate the reduced risk premium. However, the consensus was

that investment in green buildings does reduce risk to some extent, and that, non-green

buildings do suffer from increased risk.

Page 2 of 73


III. Acknowledgements

I would like to thank all interviewees and questionnaire participants who gave their time to

contribute to this research and Fiona Firth, my dissertation supervisor, for her guidance

throughout the project.

Page 3 of 73


IV. Contents

1. Introduction.................................................................................................................71.1. Rationale.......................................................................................................................7

1.2. Research Question........................................................................................................71.3. Aim and Objectives.......................................................................................................7

1.4. Methodology..................................................................................................................81.5. Scope, Limitations and Risks........................................................................................8

2. Literature Review........................................................................................................92.1. Definitions......................................................................................................................9

2.1.1. Green Building...............................................................................................................92.1.2. Risk Premium..............................................................................................................10

2.2. Regulations and Green Certifications..........................................................................102.3. Valuation and Worth....................................................................................................11

2.4. Investor Appetite for Green Buildings..........................................................................132.5. Occupier Requirements...............................................................................................16

2.6. Risk.............................................................................................................................182.7. Summary.....................................................................................................................20

3. Methodology..............................................................................................................213.1. Research Strategy.......................................................................................................21

3.2. Data Collection and Analysis.......................................................................................233.3. Constraints and Limitations.........................................................................................26

3.4. Ethics...........................................................................................................................274. Primary Data Analysis..............................................................................................27

4.1. Investor Definition of a Green Building........................................................................274.2. Investor Appetite.........................................................................................................28

4.3. Reputational Benefits of Green Investment.................................................................294.4. Appraising Investment in Green Buildings..................................................................31

4.5. Risk Premium Advantages..........................................................................................375. Conclusion.................................................................................................................41

5.1. Objective One..............................................................................................................425.2. Objective Two..............................................................................................................42

5.3. Objective Three...........................................................................................................435.4. Objective Four.............................................................................................................45

5.5. Objective Five..............................................................................................................465.6. Further Research Recommendations.........................................................................46

6. References.................................................................................................................487. Appendices................................................................................................................51

Page 4 of 73


7.1. Appendix 1: Survey.....................................................................................................51

7.2. Appendix 2: Covering Email........................................................................................557.3. Appendix 3: Survey Respondents...............................................................................56

7.4. Appendix 4: Transcript - Interview One.......................................................................577.5. Appendix 5: Transcript - Interview Two.......................................................................60

7.6. Appendix 6: Transcript - Interview Three....................................................................667.7. Appendix 7: Ethical Review Form for Research Projects Involving Human Subjects. 71

7.8. Appendix 8: Checklist for Ethical Review of Projects Involving Human Subjects.......72

V. List of Figures

Figure 1: Risk Assessment Breakdown (Source: GRESB, 2018)..........................................13

Figure 2: Investor Preferences (Source: RICS, 2018)...........................................................14

Figure 3: Triggers Driving Green Building Activity. (Source: World Green Building Trends

Report, Smart Market Report, 2013, cited in World Economic Forum, 2016)........................15

Figure 4: Occupier Building Selection Criteria (Source: van de Wetering and Wyatt, 2011). 16

Figure 5: Green Building Risk Radar (Source: World Green Building Council, 2013)...........19

Figure 6: How does your current employer define a green building?....................................27

Figure 7: Rate the importance of green credentials when appraising an office investment...28

Figure 8: Does your company report on Environmental, Social and Governance (ESG) or

sustainability targets (such as GRESB or similar assessment systems?).............................29

Figure 9: When appraising green buildings, is it possible to assess the value added by green

characteristics separately from other features, such as location?.........................................30

Figure 10: From the options below, please select all advantages that NEW BUILD green

buildings benefit from.............................................................................................................31

Figure 11: From the options below, please select all advantages that REFURBISHED green

buildings benefit from.............................................................................................................31

Figure 12: "Green buildings are a less risky investment than non-green buildings.".............37

Figure 13: As a result of these advantages, do you think that NEW BUILD green buildings

benefit from a reduced risk premium?....................................................................................37

Figure 14: As a result of these advantages, do you think that REFURBISHED green

buildings benefit from a reduced risk premium?....................................................................38

Page 5 of 73


VI. List of Tables

Table 1: Respondent Answers – Advantages of New Build Versus Refurbished Green

Buildings.................................................................................................................................32

Table 2: Responses to “As a result of these advantages, do you think that NEW

BUILD/REFURBISHED green buildings benefit from a reduced risk premium? If yes,

estimate how many bps.”.......................................................................................................39

Page 6 of 73


1. Introduction

Although the first United Nations Conference on the Human Environment was held in 1972

(United Nations, no date), it is only now that the global impact of climate change is becoming

increasingly clear. Barely a day goes by without a news report on issues such as rising sea

levels, loss of biodiversity and natural habitats or extreme weather. On 1st May 2019, the UK

government approved a motion to declare an environment and climate emergency (BBC

News, 2019). As awareness of climate change has increased and continues to do so,

consumers are beginning to put pressure on companies to behave responsibly and consider

the environmental impact in all areas of their businesses.

This also applies to investors, who are actively seeking green enterprises in which to invest

their capital. In the early 2000’s, green investment referred mainly to direct investment in

areas such as green energy and, although this was a ‘feel good’ choice for investors, it

tended to provide lower returns. Investors were choosing between normal investments, that

were likely to provide good returns, and green investments which would potentially

underperform. Fast forward twenty years and green investment is increasingly important to

investors and can provide acceptable returns (Tett, 2018).

1.1. Rationale

Although investor appetite for green investment appears to have increased, do investors

expect better returns, higher capital values and higher rents from green buildings? It has

been suggested that green buildings have advantages over non-green buildings such as

higher rents, more easily lettable and shorter void periods and are therefore a less risky

investment than non-green buildings but does this reduced risk translate into a reduced risk

premium for green buildings? This purpose of this study will be to explore investor attitudes

towards investment in green buildings, identifying advantages of investing in green buildings

and whether these advantages reduce the investment risk, and if this reduced risk results in

a reduction in the risk premium.

1.2. Research Question

Research Question: Do green buildings benefit from substantial risk premium advantages

compared to non-green buildings?

1.3. Aim and Objectives

Aim: With the growing awareness of climate change leading to an increase in green

buildings, the aim of this research is to examine the importance placed by investors on a

Page 7 of 73


property being green, whether investors consider green buildings to benefit from substantial

risk premium advantages and, if so, identify the factors that contribute to this the risk

premium advantage.

Objectives

1. Explore investors’ definition of a green building

2. Examine whether a property being green impacts investor purchasing decisions

3. Identify factors that may combine to create a risk premium advantage when investing

in green buildings

4. Explore whether green factors can be separated from other factors in investment

decisions

5. Examine whether both new build and refurbished green buildings benefit from similar

advantages

For the purpose of this research the specific target area will be investors based in London

and the South East that invest in office buildings.

1.4. Methodology

In order to satisfy the aim and objectives, relevant secondary research will be reviewed,

followed by primary data collection and analysis. The literature review will aim to provide a

framework for the study and identify key themes that this research will be built upon.

This is an exploratory study of investor attitudes towards investment in green buildings

therefore, the target respondents are decision makers on investments such as fund

managers and investment managers. The data will be collected in two phases. Firstly,

survey data will be collected. These responses will be analysed, and key themes will be

identified which will then be discussed with interviewees in the second phase of data

collection.

Once the primary data has been collected, it will be analysed alongside the secondary

research in order to draw conclusions and make recommendations for further study.

1.5. Scope, Limitations and Risks

Due to the time constraints on this study it is necessary to limit the scope of the research by

concentrating only on investor attitudes regarding investment in green buildings. Also due to

time constraints, the data will be collected using a survey followed by three to six interviews.

It would be beneficial to undertake interviews with all respondents but due to the time

Page 8 of 73


required to carry out the interviews, transcribe the recordings and analyse the data, this will

not be possible.

Another limitation of this study is that the data collected will not be representative of the

whole investment market, however as an exploratory study this is not an issue as it will be

used to identify key topics. The research will be explained to all participants in the study

beforehand and all data including name and employer will be kept confidentially.

One issue that can impact the study is that the respondents are more likely to involve

themselves in a study if they have existing strong views on the subject. Although in some

studies this may be an issue, investors in green buildings will be targeted for this research

and will already be involved in the subject matter.

This is a low risk study as the research methods chosen will be relatively low cost. The

biggest risks are ensuring all data is collected before the school summer holidays, ensuring

there are enough survey responses to analyse, and that it is possible to arrange a sufficient

number of interviews within the time constraints.

There are various other research strategies that could have been adopted, such as

quantitative data analysis of sales data to compare green buildings with non-green buildings.

However, as this is an exploratory study, the research method has been chosen in order to

identify various themes that can be used for further research.

2. Literature Review

2.1. Definitions

2.1.1. Green Building

Various definitions exist for green building with some only considering the green features of

a building, while others take social and economic factors into account alongside

environmental factors. The World Green Building Council (no date) defines a green building

as “a building that, in its design, construction or operation, reduces or eliminates negative

impacts, and can create positive impacts, on our climate and natural environment. Green

buildings preserve precious natural resources and improve our quality of life.” This definition

only considers the environmental aspects of a green building whereas the definition of a

sustainable building suggested by Lutzkendorf and Lorenz (2007), incorporates

environmental, social and economic aspects.

2.1.2. Risk Premium

The relationship between risk and reward is that, for greater risk, there should be greater

reward. For example, if an investor purchases the freehold of a recently let property to an

Page 9 of 73


occupier with a strong covenant on a long FRI lease, although there is still come risk, it

would be considered to be relatively low. Whereas a developer undertaking a speculative

development would expect greater returns but is taking on considerably more risk.

Therefore, the developer would expect a much bigger risk premium than the investor (Isaac

and O’Leary, 2012). The risk premium is the return over and above the risk free rate which

in the UK is taken from gilts, i.e. low risk government bonds. Thus, the risk premium reflects

the higher returns the investors aim to achieve by taking on additional risk. Calculating the

risk premium, however, is not an exact science as the risk premium is made up of a

combination of factors such as tenant risk, specific sector risk, legislative risk, planning risk

and legal risk, for example (Baum, 2006, cited in Isaac and O’Leary, 2012).

Investor appetite for risk varies, with some being risk averse and others being risk seekers.

Risk averse investors will require much higher returns from a riskier investment than a risk

seeking investor (Isaac and O’Leary, 2011). As investors assessments of risk vary, so do

their appraisals of investments depending on an individual’s or company’s level of

experience, for example. Consequently, estimates of value and risk involve a degree of

subjectivity (Baum, 2015).

2.2. Regulations and Green Certifications

The Minimum Energy Efficiency Standards (MEES) were introduced by the European Union

to reduce the energy consumption of buildings and have, to some extent, contributed to the

increase in green buildings. The regulations require all non-domestic properties to have an

Energy Performance Certificate (EPC) rating from A, being the most efficient, to G, being the

least efficient. From 1st April 2018, landlords were no longer allowed a new lease, or lease

renewal, on commercial properties with a rating of F or G, and from 1st April 2023, landlords

will not be permitted to let buildings with a rating of F or G. Fuerst and McAllister (2011)

argue that a building that meets the MEES regulation requirements is not necessarily green

as this rating only measures the energy efficiency without including any other factors.

Various certifications have been developed to assess and rate the green credentials of a

building which take into account more than just energy efficiency. The main ones utilised in

the UK are BREEAM and LEED. The Building Research Establishment’s Environmental

Assessment Method, known as BREEAM, is an internationally recognised assessment tool,

but its use is most prevalent in the UK and Europe. The tool can be used to assess both

new build and refurbished buildings (BREEAM, no date). The US Green Building Council’s

Leadership in Energy and Environmental Design assessment and accreditation tool, known

as LEED, is globally the most commonly used tool, but is less prevalent in the UK than

BREEAM. In the UK, many local authorities now require a BREEAM rating as a planning

Page 10 of 73


condition for new build properties. For example, London Borough of Camden require a

minimum BREEAM rating for all non-residential properties of over 500 sqm (London

Borough of Camden, no date). This is a result of sustainability not just being included in the

National Planning Policy Framework (Ministry of Housing, Communities and Local

Government, 2018), but being given great significance.

Although BREEAM ratings are increasing, researchers have found the benefits of these

ratings difficult to quantify. Fuerst and McAllister (2011) conducted quantitative research

using hedonic price regression analysis. This method is used to find econometric

relationships between property characteristics and property price by taking each attribute

and applying supply and demand characteristics (Kauko and d’Amato, 2008). Fuerst and

McAllister reported that, although there was an impact on equivalent yields for both EPC and

BREEAM ratings, they found no evidence to suggest that a BREEAM rating had an impact

on market rents or market values.

Following this, Yang (2016) undertook qualitative research to gain further insight into the

financial performance of BREEAM ratings. The first issue Yang discovered was that there

was a disproportionate number of BREEAM rated buildings in London compared to the wider

UK which indicates that there may be a geographical disparity in the demand for green

buildings, or BREEAM certifications. Another point raised was that there may be little point

in investing heavily into an existing building in order to achieve a BREEAM rating, but there

is a risk that, if new legislation is introduced, an inefficient building could drop in value

dramatically if the investment has not been made. This implies that, in order to mitigate risks

in relation to future regulations and obsolescence, investors may seek to either acquire

green buildings, or invest into existing buildings to make them green. Finally, the findings

from Yang’s study, involving a survey and a case study into British Land, indicate that a

BREEAM rating was likely to reduce void periods and attract stronger tenants, they also

stated that the rating did not lead to higher rents as tenants could not quantify the value.

Yang, however, argues that the BREEAM rating does hold value but further research is

required as the market for environmental property ratings matures.

2.3.Valuation and Worth

French (2017) claims that all new buildings are green to a certain extent and therefore, for

new builds, it is not possible to distinguish between them and there is no premium or

discount for a greener building which would impact values. French argues that all new

builds are the same, especially as a BREEAM rating of some type is often required for new

builds. However, reflecting the findings by Yang (2016), French argues that, for existing,

non-green buildings there is a ‘brown’ discount, particularly for buildings that do not comply

Page 11 of 73


with the MEES regulations. As most of the world’s real estate stock is already in existence,

much of this existing ‘brown’ stock will need investment to bring it in line with the current

MEES regulations.

Contrary to this, a study released by La Salle Investment Management (2017, cited in

Fixsen, 2017) reported that green buildings benefit from risk premium advantages compared

to non-green buildings and warrant a 65 bps premium as they are lower risk. They suggest

that this premium is made up of several small advantages such as lower vacancy risk, higher

quality tenants, cheaper financing and lower operating costs. They argue that, if returns

were the same from green and non-green buildings then it is less risky to acquire green

buildings, but go on to say that, due to the higher price of green buildings, returns are higher

if riskier non-green buildings are acquired and refurbished to improve the green credentials.

Returns from green buildings can be as much as 100 bps less than non-green buildings as a

result of the initial higher pricing.

However, there is evidence to suggest that benefits of green buildings are not factored into

valuations, or investment appraisals. The RICS Sustainability and commercial property

valuation guidelines (2nd edition, 2013) state that environmental, social and economic

sustainability should be factored into a property valuation only where there is market

evidence available to support it. Reflecting the findings of Yang (2016), the guidelines also

highlight the lack of comparable evidence in certain areas, for example, there is a great deal

of evidence regarding London offices but less in regional areas. Another obstacle identified

by Warren Myers (2013) when exploring whether valuers were the barrier to identifying the

value of sustainability, found that valuers were not attaching any value to green features of a

property due to lack of knowledge and pre-existing beliefs. Although this study provides

valuable insight, it was carried out in Australia and may not be representative of the UK

market.

Kucharska-Stasiak and Olbińska (2018) also undertook a study to identify issues when

valuing green buildings. This study was also not carried out in the UK, however much of the

secondary research used as a basis for their study is relevant to the UK market. They

highlight the issue that each building is different with a different function and end users,

arguing that a green rating cannot be precise. However, as suggested by La Salle

Investment Management (2017, cited in Fixsen, 2017), they identify direct benefits of green

buildings such as lower operating costs, better occupancy rates, shorter voids periods and

they also mention higher rents, although the studies undertaken by Fuerst and McAllister

(2011) and Yang (2016) found this not to be the case. They also identify indirect benefits

such as resistance to obsolescence and lower income risk. Developing ideas put forward in

Page 12 of 73


a study by Lorenz (2006, cited in Kucharska-Stasiak and Olbińska, 2018), they argue that

valuers play a significant role in the valuation of green buildings but, as highlighted by

Lorenz, there are still issues to overcome. Firstly, as mentioned in the European Valuation

Standards, they argue that the green credentials of a property should increase the value but,

as valuation is based on comparable evidence, it is likely that this evidence is not available.

In what could be described as a catch 22 situation, if green credentials are not being

considered when valuing a property, there will be not be any comparable evidence available

for a valuation of another green building. They also argue that, for a valuer to be able to

judge the value of green credentials, they would be required to collect much more evidence,

such as energy efficiency data, marketability and risk mitigation.

Another key point they make, which is a common theme throughout the research, is the

difficulty in quantifying green features of a property and suggest that this is because each

one does exist on its own but overlaps with other factors (European Valuation Standards,

2016, cited in Kucharska-Stasiak and Olbińska, 2018). Meins et al. (2010) and Fuerst and

McAllister (2011) agree, arguing that there is evidence around energy efficiency adding

value, whereas other measures are harder to quantify.

It is important to note when discussing external valuations is that the value estimated by a

valuer is what the valuer considers could be achieved if the property went to market. As this

research is concerned with the property investors who make decisions on acquisitions, the

worth of the property to each investor and the impact of green credentials on this

assessment of worth will be explored (Isaac and O’Leary, 2012).

2.4. Investor Appetite for Green Buildings

There has been an increase in investor appetite for green buildings with various reasons

being cited for this increase. JLL began to include sustainability in their Global Real Estate

Transparency Index (GRETI) in 2012 (Kucharska-Stasiak and Olbińska, 2018). The GRETI

assesses a country’s transparency based on “Financial performance of green buildings;

building energy benchmarking; carbon reporting; green building certifications; minimum

energy efficiency for new construction and refurbishments; minimum energy standards for

existing buildings; and green leases” (JLL, 2018, p. 46). In the GRETI 2018, JLL report that,

although overall progress is slow, voluntary measures, such as green building certifications,

have seen the most improvement indicating that there is some value in a registered green

certification, such as BREEAM. Energy efficiency is mentioned as the most transparent of

the measures as reporting is often a regulatory requirement, such as the EU MEES

regulations. JLL also report that the wider use of Environmental, Social and Governance

Page 13 of 73


(ESG) reporting is a factor, although they state that this is only applying gentle pressure on

owners and investors to reveal the green credentials of their properties or portfolios.

The items mentioned above however, are market/country specific. JLL argue that, when

looking at different types of investment vehicles or properties, the level of transparency

changes. For example, REITS are now required to undertake annual environmental

reporting such as FTSE4Good and Global Real Estate Sustainability Benchmark (GRESB)

Public Disclosure (2017). GRESB is the most widely utilised reporting standard globally for

ESG. Each year the data is collected “to assess and benchmark ESG performance of real

assets” (GRESB, 2018).

Figure 1: Risk Assessment Breakdown (Source: GRESB, 2018)

Figure 1 displays environmental issues and how many of the GRESB respondents consider

these factors within their risk assessments for both the portfolio and when undertaking due

diligence when purchasing a new asset. Although this is data is collected globally, the

insight provided is still valuable to highlight trends. For the 2018 report, data was collected

from 903 entities across 62 countries. In agreement with JLL, energy efficiency is assessed

as a risk in both current portfolios and acquisitions by over 75% of respondents, and again,

this is most likely as a result of regulations. Interestingly, climate change is considered by

less than 50% of respondents. Energy efficiency, waste management and flooding are, to

some extent, quantifiable, whereas climate change is not. The other factors listed may come

under the heading of climate change mitigation.

Page 14 of 73


In 2006, RICS researched factors that impact investor purchasing decisions. They repeated

the study in 2016, with the results published in 2018, to see if the factors had changed.

Figure 2 displays investors’ preferences in 2006 and 2016. This data was collected in phase

one using the survey method. Significantly, BREEAM rating moved from seventh place in

2006 to third place in 2016, with only location and tenant creditworthiness ranked higher.

RICS also undertook a second phase of data collection using focus groups. Data from the

focus groups highlighted various factors which have contributed to the rise in sustainability

on the agenda of property funds within the UK including the increase in ESG, MEES

regulations, future proofing assets, reducing the risk of capital expenditure on obsolescence,

and increased lettability. They also reported that, due to a perceived future advantage of

green buildings over non-green buildings, a very small tweak in the risk premium was made

for green assets. However, the key driver appears to be being seen as a responsible

company by all stakeholders and to attract further investment. RICS conclude that they do

not see any evidence of a green premium in the UK, although some respondents thought

that this would change in the future.

Figure 2: Investor Preferences (Source: RICS, 2018)

The World Economic Forum (2016) also highlighted various triggers that are driving this

change. Although the study is a comparison between triggers in 2008 and 2012, the change

in attitudes gives valuable insight into the move towards green buildings. As mentioned

previously, doing the right thing was important to investors in the early 2000’s. Figure 3

shows that between 2008 and 2012 this decreased significantly with Branding/PR and

Operating Costs being highlighted as the most important triggers driving future activity. This

Page 15 of 73


corresponds with the findings by RICS (2018) who found that a key driver to green

investment was being seen as a responsible investor.

Figure 3: Triggers Driving Green Building Activity. (Source: World Green Building Trends Report, Smart Market Report, 2013, cited in World Economic Forum, 2016)

It is clear from the research that, as investor appetite for green buildings has grown, the

reasons for investing in green buildings have evolved. A large number of investors used to

do so because it was the right thing to do, investors are now concerned with being seen as a

responsible investor. Many companies also have ESG reporting requirements. In addition

to this, the RICS (2018) survey, echoing the argument put forward by La Salle Investment

Management (2017, cited in Fixsen, 2017), highlighted other factors that have driven

investors towards green investment such as regulations, reduced risk, future proofing and

increased lettability.

2.5.Occupier Requirements

Much of the research around green buildings is concerned with whether green buildings,

such as energy efficient buildings or BREEAM rated buildings, are more attractive to

potential tenants and if so, does this translate into benefits such as higher rents for green

buildings and shorter void periods, or increased lettability, as stated in RICS (2018). From a

tenant’s perspective, there are a number of benefits to occupying space in a green building,

such as lower operating costs and lower employee absenteeism. They may also enjoy

reputational and public image benefits, as suggested for the investors (Eicholtz, 2010, cited

in Kucharska-Stasiak and Olbińska, 2018). Similarly, Fuerst and McAllister (2011) also

found occupiers benefited from reputational benefits and marketing opportunities.

Page 16 of 73


Fuerst and van de Wetering (2015) compared UK lease data from 2006 to 2010 and found

that occupiers were paying more for BREEAM rated space. However, they concluded that

there may be other factors involved, such as the fact that BREEAM ratings are more likely to

be applied to grade A space which a tenant would pay a higher rent for anyway. They also

stated that companies may be opting for more sustainable space to support their corporate

strategy, which aligns with the findings by Eicholtz (2010) and Fuerst and McAllister (2011).

Van de Wetering and Wyatt (2011) undertook a study of office occupiers based in and

around Bristol to gauge their attitudes towards sustainable and BREEAM rated space. They

asked the respondents to rank building selection criteria in order of importance. As can be

seen from the results, Figure 4, green features of the building were ranked as least important

of the given options. Although this study is dated and the responses may differ if the study

was redone, it demonstrates that, although occupiers do see green features as important,

they are not essential whereas criteria such as parking and flexibility are considered much

more important.

Van de Wetering and Wyatt (2011) also found that tenants would, in theory, be willing to pay

a slightly higher rent for a green or BREEAM rated building but would do so if, in the short to

medium term, the extra cost was covered by energy savings for example. They indicated

that there would need to be a cost-benefit analysis. Other respondents felt, echoing a key

theme through the research, that the benefits could not be quantified therefore, they would

not pay a higher rent.

Figure 4: Occupier Building Selection Criteria (Source: van de Wetering and Wyatt, 2011)

A more recent study by the Investment Property Forum (2017) found that occupiers are now

more aware of their staff work environment and the impact on wellbeing and productivity.

Importantly, they note that occupiers are not always willing to pay more for sustainable

space but when the vacancy rates are high the sustainable spaces would have a competitive

Page 17 of 73


advantage. This advantage may also affect capital values as better performing buildings

enter the market which reduces the desirability of underperforming stock. This suggests, as

do Ellison, Sayce and Smith (2007), that investing in existing stock would mitigate the risk of

falling desirability to tenants and decreasing capital value. In contrast to this, the previously

mentioned RICS (2018) study found that, if occupiers are responsible for the energy costs

that there was no incentive for investors to provide energy efficient buildings. However, it is

not specified if this relates to new or existing stock.

It seems that, although tenants do consider green features of building to be of some

importance, they do not yet seem to be a crucial part of the decision making process when

taking space. As with the investors, tenants find it hard to quantify the benefits of going

green and, even though they would in theory pay more for a green space, they would want

to be able to quantify the benefit.

2.6.Risk

Risk can be split into two categories; systematic or unsystematic risk. Systematic risks are

caused by factors that impact the market, over which a property investor has no control,

such as economic or social factors. Unsystematic, also known as specific, risks impact

particular investments which the investor often has some control over, such as gearing level,

for example. Properties can be carefully chosen by investors to reduce risk. Investments

are appraised and risk assessed with particular attention being given to the downside risk

(Isaac and O’Leary, 2012).

Lorenz and Lützkendorf (2008, cited in RICS 2018) suggest that there is a link between

investment in green buildings and reduced investment risk but do not give any specific

reason for this other than stating that there are social, political, economic and physical

factors. However, they speculate that investment risk may be reduced because green

buildings:

- “are more cost/energy efficient

- are more functionally effective

- are more profitable and marketable

- have greater serviceability

- have greater adaptability

- have greater comfort/well-being levels for occupants

- have lower levels of risk

- are better for the environment”

(Lorenz and Lützkendorf, 2008, cited in RICS, 2018, p. 16)

Page 18 of 73


Many of these assumptions suggested by Lorenz and Lützkendorf (2008) reflect the

research covered in the previous sections. More recently, The World Green Building Council

(2013) created a risk radar, see Figure 5, to highlight the risks associated with non-green

buildings, many of which can be mitigated by either acquiring green buildings or investing in

non-green buildings to make them green. The risks were sorted into four categories;

Regulatory, Physical, Market and Technology. Each risk category is explained below. As

has been suggested numerous times throughout the research, The World Green Building

Council argue that risk is reduced significantly with green buildings compared to non-green

buildings. The solution to many of the risks highlighted have been mentioned in previous

sections, such as increased lettability, future proofing, protection against future regulations.

Regulatory Risk – As discussed, the MEES regulations are a risk to non-green, or

less energy efficient buildings. However, there is also a risk of future regulations. A

greener property is more likely to meet future regulation changes.

Physical Risk – These risks include issues thought to be caused by climate change

such as increased risk of flooding and extreme weather. The impact of these risks

varies widely depending on location. However, the temperature risk for example, a

less efficient building may not be able to maintain a comfortable environment for

occupiers if temperatures increase. As with regulatory risk, physical risk is

concerned with future proofing the building.

Market Risk – This includes lettability issues such as occupancy rates and tenant

demand for greener, efficient properties. Also covered is reduced risk in raising

finance on an investment, cheaper financing costs and ability to attract investors.

Technology Risk – The World Green Building Council (2013) suggest that there are

risks to both investing in technology and not investing in technology. Although

investing in new technology to measure energy efficiency, for example, or installation

of solar PV, can bring a number of benefits and mitigate some of the risk mentioned

above, there is also a risk that this tech can become obsolescent and, rather than

future proofing the buildings, can have the opposite effect.

Page 19 of 73


Figure 5: Green Building Risk Radar (Source: World Green Building Council, 2013)

2.7.Summary

As awareness of climate change has spread into the mainstream, investor appetite for green

investments has grown. In part, this has been attributed to reputational benefits for the

investors. But does investment in green real estate also bring financial benefits? A great

deal of research has been undertaken in an attempt to answer this question.

Numerous advantages have been suggested for investing in green buildings. These include:

Increased lettability

Reduced void periods

Higher rents

Reduced operating costs

Cheaper financing

Future proofed asset

Mitigation against future regulation changes

Page 20 of 73


Reduced risk of capital expenditure due to obsolescence

Competitive advantage

After reviewing this list, it would be fair to assume that green buildings would command a

higher market value than non-green buildings. Yet, the existing research gives mixed

results. La Salle Investment Management (2017, cited in Fixsen 2017) suggest that these

benefits should lead to a reduced risk premium and a higher market value, whereas French

(2017) argues that all new buildings are green and as a result there is no premia for green.

However, there does appear to be a consensus across the research that green buildings

benefit from reduced risk compared to non-green buildings. Although, as with the benefits

listed above, this reduced risk does not necessarily translate into a higher market value.

One of the main reasons suggested for this is that the benefits of investing in green

buildings, or letting green space, are not quantifiable for both investors and occupiers

respectively. Perhaps, as French (2017) suggests, although there is not a premium for

green, but a ‘brown discount’ for non-green buildings and an increased risk, as highlighted

on the Green Building Risk Radar (World Green Building Council, 2013).

A question that is not covered in the existing research is whether refurbished green buildings

benefit from the same advantages as new build green buildings.

To gain further insight into this topic and to satisfy the research question, aim and objectives,

primary research will be undertaken to explore investor attitudes towards investing in green

buildings.

3. Methodology In order to satisfy the research aim and objectives several research methods were

considered. Once the literature had been reviewed primary data was collected. Although

there is much background research, primary data was required to satisfy the specific

objectives of this research project (Ghauri and Gronhaug, 2010).

3.1.Research Strategy

The starting point was to decide whether the data collected should be qualitative,

quantitative or a mixed method approach using both. Although the difference between the

two types of research is widely accepted to be that qualitative is non-numerical and

quantitative is numerical, there is often some crossover. For example, surveys are

considered to be a quantitative method of collecting data, yet the researcher may be asking

open questions. This is sometimes referred to as qualitative numbers (Saunders, Thornhill

and Lewis, 2009). For this research project a mixed method was used, involving a

Page 21 of 73


combination of surveys and interviews. Firstly, surveys were conducted, followed by

interviews. This is known as a sequential mixed methods research design as the research

was undertaken in two phases. Phase one involved collecting and reviewing the survey data

with phase two being the interviews. The interview questions were based on the data

collected in phase one. This multi-method approach was chosen as the answers in the

surveys highlighted key themes, and the interviews were then utilised to explore these

themes in more depth.

Surveys are the most common method of data collection as they provide structured

responses to a carefully chosen set of questions, which means the data collected is

comparable. They also allow data to be collected from a required number of respondents at

a low cost and over a relatively short period of time (Ekinci, 2015). When constructing the

survey, the questions were chosen carefully to encourage the respondent to give answers

that worked towards satisfying the aims and objectives of this research project. The surveys

were created and administered through SurveyMonkey and sent via email as paper surveys

are costly and unnecessary. The surveys were self-administered by the respondent.

A draft survey was created and sent as a pilot to highlight any issues such as unclear

questions. The pilot survey was administered by an existing contact of the researcher, who

is part of the target group of respondents. Following this pilot, several changes were made

to the questions. The survey originally contained several open-ended questions in order

gain insight into the behaviours of the respondents and their purchasing decisions regarding

green buildings. However, the pilot respondent suggested that, due to the high pressure job

roles of the target respondents, the survey should contain predominantly multiple choice

questions and should take no more than 5 minutes to complete, suggesting that this would

increase the response rate. See Appendix 1 for a copy of the survey questions.

The researcher’s existing business contacts compiled a list of possible target respondents to

the survey. Once this list had been compiled and the pilot survey was administered, the

survey was sent out to the contact list, and a reminder was sent out one week later. No

further reminders were sent as the researcher was conscious of pestering the contacts. See

Appendix 2 for the covering email. Once the surveys had been conducted, the data was

reviewed, with key trends and themes being drawn from the data. These themes were then

used to draft a list of questions for the interviews.

The interviews were conducted with three respondents to explore in more detail the key

themes that had arisen from the surveys. When undertaking research of an exploratory

nature interviews can be very helpful in gaining further insight into attitudes, behaviours and

the motivation behind them (Saunders, Thornhill and Lewis, 2009). The interviews were

Page 22 of 73


semi-structured to ensure the key themes are discussed but there was enough flexibility to

cover other topics and themes that arose during each interview. Structured interviews would

have been too restrictive and completely unstructured interviews would have been

inappropriate considering that the key themes had already been raised in the phase one

survey. The interviews were conducted on a one to one basis by phone, rather than face to

face due to time constraints. Although it would have been advantageous to undertake

interviews with all respondents, this was not practical, again due to time constraints.

However, the key points raised from this project may lead the way for further research in the

future.

Alternative approaches were considered for this research project. Rather than collecting

data through surveys, focus groups could have been utilised. Although this may have

revealed the data required, due to the nature of the topic, the fact that respondents hold

senior roles in their organisations and potentially know each other professionally, this

method was ruled out (Ghauri and Gronhaug, 2010).

A very different way to approach this research would have been to source data on property

sales to identify if there was a correlation between green buildings and values. Although this

would be beneficial to an extent, this approach would not have revealed any insight into

investor behaviour and their motivations behind purchasing decisions.

It would be possible to explore investor behaviour and motivations behind investment by

undertaking case study research. A case study for research of this type would often involve

data collection through verbal reports, interviews and observations. Although this method

would highlight key themes within a certain company, or fund, there would be issues with

generalisability, i.e. it would not be possible to assume that other investors behaved the

same way as the sample would not be representative (Ghauri and Gronhaug, 2010). One of

the aims of this study is to identify key factors that may impact investor behaviours when

purchasing green properties. An in depth study into one company would not have produced

the necessary data.

3.2.Data Collection and Analysis

There are various parties involved in assessing the value of a property who would be

involved in assessing the risk premium such as agents, valuers, fund managers, asset

managers and investment managers. For this project, as the aim is to assess the attitudes

and behaviours of investors when purchasing green property therefore it is the investors that

hold the data required. These would be the people who make the purchasing decisions

within a property company or fund. Therefore, investments managers, fund managers and

property company managers, for example, were targeted as potential respondents. If all

Page 23 of 73


parties, as listed above, were targeted, the data would have been diluted as each of these

parties has different motivations. Also, though agents and valuers advise clients, they do not

have the final say in purchasing decisions and cannot comment on other parties’

motivations.

The sample of respondents could have been chosen using a probability or non-probability

method. In order to choose a probability sample, also known as a representative sample, it

would be necessary to have a complete list of all possible respondents within the target

population. Clearly in this case this information was not available. Therefore, a non-

probability sample was used (Saunders, Thornhill and Lewis, 2009). As this is an

exploratory study, the sample did not need to be representative of the wider commercial

property market, and rather than focus on the amount of data collected, the quality of the

data was much more important. However, it was still necessary to ensure enough data was

collected for comparisons to be drawn.

The sampling method used for this study was purposive sampling which is where the

researcher targets specific respondents or companies as they will be able to provide the

required data. This method was used because, although property companies and funds

could have been chosen at random, there is little point in targeting respondents who do not

invest in green property for example. As the target respondents were all employed in the

same industry and in fairly similar roles, this type of sampling is known as homogenous

sampling, as it targets one sub-group employed in one sector based in London and the

South East (Saunders, Thornhill and Lewis, 2009).

Access to the respondents was gained through the researchers existing contacts. As the

type of respondents required was of a very specific nature, individuals were identified and

targeted, rather than going to any contact within a company that invests in green buildings.

Some of the targeted contacts also shared the survey with their own contacts. The covering

email was carefully written in order to be transparent about the nature of the research and

also to explain that the data would be carefully stored and remain confidential. When asking

contacts to click on a link, it was important to ensure that the covering email seemed sincere

and genuine, as most people with knowledge of cyber security would not click on a link from

an unknown contact. The covering letter was also used to inform contacts of the

researcher’s intention to complete a number of semi-structured interviews. In total, the

survey was sent to 39 contacts, with 24 responses received. This is an excellent response

rate of 61.53% which can be attributed to the survey being sent to existing contacts. See

Appendix 3 for respondent list.

Page 24 of 73


As the research was undertaken in two phases the survey data was collected and analysed

first. As previously discussed, the survey originally consisted of open and closed ended

questions. However, following the pilot survey, most of the open questions were removed

and replaced with multiple choice questions. However, there was an ‘other’ option added

with a comment box which a number of respondents utilised. Therefore, it was possible for

some of the data to be analysed numerically, such as the number of times a certain variable

was mentioned as a factor that impacts the risk premium, whereas other data was not

assessed in this way. The data was exported from the survey software to create a data

matrix and analysed to identify key themes and trends in the responses to the questions.

Various charts and graphs were created to display the responses. The data acquired was

also compared to the secondary research outlined in the literature review to highlight any

similarities or differences compared to other researcher findings. The survey also included a

question at the end asking if the respondent would be willing to be involved in a short

interview.

Once the survey data had been analysed the key themes were used to create a list of

questions and topics to be discussed with respondents in semi-structured interviews. In

total, three semi-structured interviews were conducted. Although it would have been

beneficial to do two or three more, time constraints and availability of the respondents due to

school summer holidays meant that this was not possible.

Ghauri and Gronhaug (2010) state that the purpose of qualitative data is to try to gain

understanding and insight, thus the process of analysing the data from the interviews was a

gradual and reflective process (Saunders, Thornhill and Lewis, 2009). Although there is

software available to code interview data which speeds up the process, the researcher in

this project only undertook three interviews, to expand on the data collected in the surveys,

therefore there was not an overwhelming amount of data that necessitated a software

package to analyse. The data was categorised and sorted with key themes identified.

It is important to state that, as part of the data analysis, the secondary data from the

literature review, the survey data and the interview data were analysed together with key

themes and deductions being made from all three combined. This is known as triangulation.

Also, as this research is deductive, which means that although the researcher has made use

of previous research and personal assumptions to organise and direct the research strategy

and analysis, it is vital that these did not dictate the research project (Ghauri and Gronhaug,

2010).

Page 25 of 73


3.3.Constraints and Limitations

With all research there are various constraints and limitations. Saunders, Thornhill and

Lewis (2009, p. 396) highlight a number of issues that may impact the data quality when

undertaking research, including semi-structured interviews and surveys. These are:

“reliability/dependability;

forms of bias;

cultural differences;

generalisability/transferability;

validity/credibility”

In order to overcome these issues, a number of steps were taken, and issues considered. It

was vital to explain the research to the respondent and the motivations behind the research.

It was also important to conduct the interviews in a location where the respondent felt

comfortable to talk openly. Ideally, the interviews would have been done face to face, but

due to time constraints for both the researcher and the respondents the interviews were

conducted over the phone. Before the interviews were conducted the researcher asked the

respondent if they were still happy for the interview to go ahead and if they were comfortable

to talk openly. They were also reassured that their answers were confidential and that their

names and employers would not be mentioned in the interview transcriptions and anywhere

else within the research project.

To avoid generalisability issues a representative sample must be used, or it must be stated

that further research must be undertaken on the themes highlighted from the research

project. As discussed previously, this research is not intended to be representative but is of

an exploratory nature. The research design is also transferable so that another researcher

can repeat or continue the research.

In order to gain full insight into each respondent’s attitudes and to fully investigate factors

that impact decision making, the researcher would have ideally undertaken interviews with

all respondents. This, however, was not possible due to time constraints when both

collecting and analysing the data. Another limitation is that, as the topic of the research is

green buildings, respondents who already had an interest in the topic may have been more

likely to complete the survey or agree to be interviewed which may impact the data as it may

not be representative of the wider property sector. However, the purpose of this research is

to gain further insight and lead the way for further research to be undertaken.

Page 26 of 73


3.4.Ethics

The researcher has considered ethics throughout this research by always remaining

transparent and objective and accurately reporting the findings. Although the topic is

unlikely to raise emotions in the respondent or be uncomfortable to discuss, the researcher

ensured that no harm of any type came to the respondents as a result of this research.

Regarding the respondents, Saunders, Thornhill and Lewis (2009) state that there are three

areas of concern for businesses when considering their involvement in a research project;

Time/resources, sensitivity and confidentiality. Each of these were considered within the

research strategy. The survey took no longer than five minutes to complete and was

completed on a computer, which meant it could be done at any time of day. The survey did

not ask the respondent any sensitive questions. Also, the topic is not negative, therefore the

respondent should not have been concerned with any reputational issues as a result of

involvement in the research. Finally, all data was kept confidential and names of

respondents were not stored with the data.

The covering email for the survey outlined the research question and the purpose of the

survey. The email also contained details on confidentiality and anonymity and explained that

data would be stored for the research project and then deleted. It also explained that

individual’s and company’s names would not be used anywhere within the report. See

Appendix 2 for the covering email.

4. Primary Data Analysis Various themes arose from the primary data collection, which will be analysed together with

the secondary data reviewed in the literature review.

4.1. Investor Definition of a Green Building

The survey respondents were asked how their current employer defines a green building.

See Figure 6. As was discussed in Section 2.1.1, there are many definitions for a green

building, with some only factoring in environmental impact, and others that consider

additional factors, such as social and economic. 20.83% of respondents said they used

BREEAM or another accredited rating system to define a green building with only one

respondent saying they used an official definition. Interestingly, 12.50% of respondents

indicated they used EPC rating to define a green building, although they were not asked

what the rating would need to be for the building to be defined as green. Fuerst and

McAllister (2011) argued that, as EPC only measures energy efficiency, even a good EPC

rating does not necessarily mean a building is green. In agreement with this, interviewee

Page 27 of 73


two stated that they take EPCs ‘with a pinch of salt,’ suggesting that they are not a reliable

measure of the green credentials of a building.

One respondent selected ‘Other (please specify)’ and explained “We try not to use the term

'green building' as it can be a bit misleading(it's not that binary), rather we are trying to

ensure that everything we manage meets minimum standards and where possible we push

towards our best practice aspirations.” Interviewee one stated “…it’s about wellness now,

not just about having a low carbon building...”, suggesting that reviewing the green

credentials of a green building cannot be done without also reviewing the social aspects.

This demonstrates the complexity of the topic. As will be discussed later in this section,

companies and individuals have varying views on green buildings, on the benefits of, and

indeed the barriers to, investment in green and what their corporate aspirations are in terms

of green investment.

BREEAM/LEED or other accredited rating

EPC (Environmental Performance Certificate)

An official definition such as the World Green Building Council definition

All of the above

Other (please specify)

0% 20% 40% 60% 80% 100%

How does your current employer define a green building?

Figure 6: How does your current employer define a green building?

4.2. Investor Appetite

As explored in Section 2.4, investor appetite for green investments is growing and has been

for several decades. The respondents were asked to rate the importance of green

credentials when appraising a potential office investment. See Figure 7. Tellingly, all

respondents answered that they were either important or slightly important, with 70.83%

choosing very important. Although this question does not provide any further insight, this is

a strong indicator of the importance of green credentials in an office investment and a

significant sign as to investors’ appetite for green buildings.

Page 28 of 73


The interviewees were asked if they thought investor appetite for green changed depending

on the strength of the market. Interviewees one and three both answered that they thought

there has been such an attitude shift towards green investment that changes in the market

have not impacted this. However, interviewee two disagreed to some extent, stating that it

may be slightly cyclical, arguing that the UK in currently in a late cycle market and as

pressures on rents increases, interest in sustainable buildings reduces. Interviewee three

did go on to say that investors would not accept lower returns for green investment

therefore, if returns were becoming harder to achieve, they would be unlikely to pursue a

sustainable agenda that would have a negative impact on returns.

Important

Slightly important

Not important

Don't know

0% 10% 20% 30% 40% 50% 60% 70% 80%

Rate the importance of green credentials when appraising a potential office investment

Figure 7: Rate the importance of green credentials when appraising an office investment

The respondents were also asked if they intended to increase the number of green assets in

their portfolio. 23 of the 24 survey respondents said they intended to increase the number of

green buildings, with one respondent answering that they didn’t know. Although this

question does not provide any reasons behind this, it is a clear indicator that appetite for

green investment amongst property funds and companies is strong.

4.3. Reputational Benefits of Green Investment

66.67% of the respondents said that their employer undertook some type of environmental

reporting, while 25% said they did not and 8.33% said they didn’t know. See Figure 8.

Interviewee two and three stated that they used GRESB, and that part of the reason they did

so is that their shareholders required that they undertake environmental reporting.

Interviewee three stated “I think from our perspective GRESB is kind of table stakes now.

Umm, it’s something that if you are to be taken seriously as an asset manager, I think

Page 29 of 73


investors are, investors are just expecting you to provide that transparency.” In fact, all three

of the interviewees stated that reputational benefits of being green were an important driver

towards green investment. This corresponds with the findings in the RICS (2018) research

which found that one of the key drivers towards green investment was being seen to be a

responsible company by all stakeholders and to attract further investment. JLL (2012, cited

in Kucharska-Stasiak and Olbińska, 2018) stated that ESG reporting requirements were only

applying gentle pressure on owners and investors to reveal their green credentials.

However, it may be that, since this statement was made, the appetite for green investment

has increased further with the pressure on investors to undertake and report ESG

increasing.

Does your company report on Environmental, Social and Governence (ESG) or sustainability targets (such as GRESB or similar assessment sys-

tems)?

Yes No Don't know

Figure 8: Does your company report on Environmental, Social and Governance (ESG) or sustainability targets (such as GRESB or similar assessment systems?)

An issue raised, which Interviewee three expressed as a “personal bugbear”, is whether the

initiatives taken by investors to produce green properties are actually the most sustainable

actions to take. Interviewee three argued that,

“…the marketing is skewed towards building new, shiny sustainable buildings. We

are not taking into account carbon, the cost of knocking down old buildings. It is

much more sustainable to take older buildings and refurbish them. And yes, you

might have lower sort of EPC scores, but actually, from a long term sustainable

perspective of going and buying lots of concrete and glass and stuff like that. That’s

not taken into account in the market dynamics we’ve got there. So, everyone will sit

there and say I’ve got a green, sustainable building but you just knocked down a

perfectly good one.”

Page 30 of 73


Interviewee two agreed with this, stating “…one thing we are very keen to make sure we

don’t do is just tear down existing buildings to put up very green ones, because of the huge

embedded carbon in existing buildings. When we look at carbon impact of development, we

look at the existing embedded carbon in the buildings that we have.”

This is an interesting point and goes back to the reputational benefits of being green,

suggesting that building a new sustainable building would be beneficial for showcasing a

property company or funds’ desire to seem as if they invest sustainably, but both

interviewees argue that in reality what they are doing is unsustainable. Although this is an

interesting point it is outside the scope of this study and warrants further investigation into,

for example, how this would be reflected in environmental reporting.

4.4. Appraising Investment in Green Buildings

A common theme throughout the secondary research is the difficulty in appraising the

advantages of green buildings and attaching a value to each of these advantages. To gain

further insight into this, the respondents were asked if it was possible to identify value added

by green characteristics separately from other features such as location. 29.17% answered

no, with 20.83% choosing ‘Other (please specify)’ and, in the comment box, all stated that it

is very difficult, giving a combined percentage of 50%. 41.67% said that it was possible and

8.33% said they didn’t know. Considering that many of the previous studies have suggested

that it was very difficult, the number of respondents who answered ‘yes’ is surprisingly high.

However, as this is a binary question to what is potentially a question that needs further

discussion, this question does not provide the insight required and needs further

investigation.

When appraising green buildings, is it possible to assess the value ad-ded by green characteristics seperately from other features, such as

location?

Yes No Don't know Other

Figure 9: When appraising green buildings, is it possible to assess the value added by green characteristics separately from other features, such as location?

Page 31 of 73


In order to identify the advantages that the respondents believed green buildings benefit

from, the respondents were asked to choose from a list. The options given on the list were

compiled from the secondary research. They were asked to doth this for both new build

green buildings and refurbished green buildings. See Figure 10 for responses to the

question in relation to new build green buildings and Figure 11 for responses in relation

refurbished green buildings.



Higher rents


Future proofed

Protection against future regulation changes

Reduced risk of capital expediture due to obsolescence

Competitive advantage over non-green buildings

Increased saleability


0% 10%20%

30%40%

50%60%

70%80%

90%100%

From the options below, please select all advantages that NEW BUILD green buildings benefit from

Figure 10: From the options below, please select all advantages that NEW BUILD green buildings benefit from



Higher rents


Future proofed

Protection against future regulation changes

Reduced risk of capital expediture due to obsolescence

Competitive advantage over non-green buildings



0% 20%40%

60%80%

100%

From the options below, please select all advantages that REFURBISHED green buildings benefit from

Figure 11: From the options below, please select all advantages that REFURBISHED green buildings benefit from

Page 32 of 73


New Builds Refurbished

Difference (New build versus refurbished)

Increased lettability 83.33% 70.83% 12.50%Reduced void periods 58.33% 50.00% 8.33%Higher rents 12.50% 12.50% 0.00%Reduced operating costs 70.83% 66.67% 4.17%Future proofed 83.33% 75.00% 8.33%Protection against future regulation changes 75.00% 75.00% 0.00%Reduced risk of capital expenditure due to obsolescence 62.50% 66.67% -4.17%Competitive advantage over non-green buildings 75.00% 62.50% 12.50%Increased saleability 58.33% 54.17% 4.17%Other (please specify) 8.33% 4.17% 4.17%

Table 1: Respondent Answers – Advantages of New Build Versus Refurbished Green Buildings

Table 1 shows the difference in responses between new build and refurbished buildings.

For new build green buildings, of the choices given, 83.33% of respondents selected both

‘Increased lettability’ and ‘Future proofed’ which had the highest number of responses, and

75% selected both ‘Protection against future regulation changes’ and ‘Competitive

advantage over non-green buildings.’ With only 12.5%, ‘Higher rents’ was chosen by the

fewest number of respondents.

For refurbished green buildings, the advantages with the highest number of responses were

‘Future proofed’ and ‘Protection against future regulation changes’ which were selected by

75% of respondents, followed by ‘Increased lettability.’ ‘Higher rents’ was again chosen the

least number of times by only 12.5% of respondents. Table 1 highlights that there are

perceived advantages to investing in new build green buildings and refurbishing existing

buildings to make them more sustainable and, just using this table, it would be fair

assumption that green buildings are a better investment. However, after considering the

secondary research and the data collected from the interviewees, the situation is much more

complicated than this suggests. In order to assess this, each of the possible advantages will

be reviewed in turn.

Corresponding with the studies by Yang (2016), La Salle Investment Management (2017,

cited in Fixsen, 2017), Kucharska-Stasiak and Olbińska (2018) and RICS (2018),

respondents said that green buildings would benefit from increased lettability and, for new

builds, reduced void periods. Interviewee two, in agreement with this, said that you would

expect a green building to be more lettable with a shorter void period, but, as mentioned

previously, stated that it was very difficult to quantify.

Page 33 of 73


An important point made by Interviewee two that did not appear to be covered in the existing

research is that even “the most testosterone fuelled, couldn’t give a damn, Trumpesque,

kind of, capitalist business would take green building.“ By making a building green there are

no exclusions from the potential tenant base as a potential tenant who does not specifically

require a green building will still let one, whereas if a building is not green, potential

occupiers who require a green building will not consider it. Therefore, the number of

potential tenants shrinks.

Interestingly, for both new and refurbed green buildings, only 12.5% of respondents selected

higher rents. Numerous studies have been undertaken to explore this further. Fuerst and

van de Wetering (2015), after comparing UK lease data from 2006 to 2010, found that

tenants were paying more for BREEAM rated space, however, as previously mentioned,

they found it was difficult to ascribe this higher rent to only the BREEAM rating and not to, for

example, the quality of the space or location. In two more recent studies, Fuerst and

McAllister (2011) and Yang (2016) did not find any evidence to suggest that green buildings

achieve higher rents. Yang (2016) found that occupiers, similarly to investors, could not

quantify the value of a green building and would therefore, not pay a higher rent. Van de

Wetering and Wyatt (2011) found that, although occupiers indicated that they would pay a

high rent in principle, green credentials of a property were ranked far behind other features

such as location and parking ratio.

All three of the interviewees were asked if they thought a green building would achieve a

higher rent. Interviewee one answered that there are reasons other than higher rental

income that lead investors to green buildings. These will be discussed later. Interviewee

two said “I think the tricky thing about it is, is knowing, because you never have two identical

buildings, you never have a test, you know, in a kind of experimental sense. You don’t have

two buildings, you go right, they’re identical, I’ll make one green and I won’t make the other

one green and then I’ll look at what the rents do and where the tenant demand is, what the

renewal propensity is…” He went on to say that, in this situation, the green building would

achieve a higher rent, but you couldn’t say how much. He also emphasised again that it is

very difficult to say what the impact of the green credentials is on an occupier choosing the

space or agreeing a certain rent. Interviewee three answered “They just, they just won’t.”

Van de Wetering and Wyatt (2011) found that tenants may be willing to pay a higher rent if

taking a green building meant reduced operating costs, as this is a more measurable benefit.

However, Interviewee two stated “…we haven’t moved to a world where let’s say, tenants

are looking at things from a total occupational cost piece, so they are not sitting there saying

we’re saving X on water and Y on electricity, guess what mister landlord, because we are

Page 34 of 73


not paying as much there, we are going to give it to you. We are simply not seeing that

dynamic,” suggesting that tenants are focusing on the headline rent rather than the overall

cost of occupation and that, in practice, the offer of reduced operating costs does little to

entice a tenant to a building. This also highlights that, if a tenant is benefitting from reduced

operating costs, but paying a higher rent, this would reduce the benefit of lower operating

costs.

In the survey, 70.83% of respondents selected that new builds would benefit from reduced

operating costs, with 66.67% saying the same for refurbished green buildings. This is higher

than expected as RICS (2018) suggested that investors are not interested in lower operating

costs as they are covered by the tenant and not the landlord. However, it may be that there

are reasons behind this that have not been covered as, in their experience, lower operating

costs may bring other advantages, such as an improvement in EPC rating.

‘Future proofed’ and ‘Protection against future regulations’ were chosen by more than three

quarters of the respondents for both new build and refurbished green buildings. These two

variables are connected to some extent. The World Green Building Council (2013) suggest

that non-green buildings face regulatory risk. For example, currently the MEES regulations

only apply to F and G rated buildings but these may change in the future. If a property has a

good rating then it may be safe from these changes, but if it only just meets the current

regulations then any changes may have a negative impact on value and lettability.

Therefore, a greener property is better protected, or to some extent, future proofed. In

agreement with this, RICS (2018) found that their respondents thought greener properties

were better protected from future changes in regulation. Interviewees two and three also

agreed, with Interviewee two stating “…the government are, you know, there are a number

of sort of, push factors in terms of sustainability so, you know, government regulation is

increasing…”, suggesting that anticipated regulation changes are a driver towards green

investment. In agreement, interviewee three stated that “…they should reduce risk in the

future with regards to legislative changes.”

‘Reduced risk of capital expenditure due to obsolescence’ was selected by 62.5% and

66.67% for new build and refurbished respectively. Interestingly, this was the only option

where a higher number of respondents selected the advantage for refurbished buildings than

new buildings, however the difference is only 4.17% which represents one respondent.

Obsolescence is an interesting topic in relation to green buildings as some studies, such as

Yang (2016), La Salle Investment Management (2017, cited in Fixsen, 2017) and RICS

(2018) suggest that investment in a property to make it green will reduce obsolescence.

However, The World Green Building Council (2013) suggest that, what they refer to as

Page 35 of 73


technology risk, goes both ways, and that there is a risk in both investing and not investing.

This sentiment was reflected in the interviews with interviewee three stating “We take that

when having chats with colleagues now. We can spend X to deal with Y problem but, is

that, are we just wasting the money? Are we just moving the chairs off the Titanic cos of all

of a sudden we are going to have X issue come through?”, suggesting that capital

expenditure to deal with an unknown problem in the future, which may or may not

materialise, is a difficult decision to make. Interviewee two stated that, in regard green

buildings, “Intuitively, you feel, over time, functional obsolescence is gonna be lower,” but, as

with interviewee two, Interviewee three goes on to say that it is difficult to know if investing in

green technology is the right thing to do as it could actually increase the risk of

obsolescence.

The last two advantages that the respondents were asked to choose from were ‘Competitive

advantage over non-green buildings’ and ‘Increased saleability’ which, for new builds, were

selected by 75% and 58.33%, respectively and for refurbished, were selected by 62.5% and

54.17%, respectively. Investment Property Forum (2017) argue that green buildings would

have a competitive advantage over non-green buildings when vacancy rates were high,

however this was not specified in the question to the respondents. In agreement with this,

Interviewee one stated that green buildings might benefit from increased liquidity.

Interviewees two and three, as mentioned previously, stated that, if you had two identical

buildings then you could say that that the greener one would have a competitive advantage

and increased liquidity, but as this situation never happens, it is very hard to measure.

Interviewee two mentioned several times that intuitively he felt that green buildings should

perform better in all of these aspects and achieve higher rents and capital values, but it is

almost impossible to measure. This agrees with the European Valuation Standards (2016,

cited in Kucharska-Stasiak and Olbińska, 2018) and by Meins et al. (2010) and Fuerst and

McAllister (2011) who state that one of the main issues with green buildings is that many of

these perceived benefits are difficult to quantify or attach a value to.

However, French (2017) claims that all new builds are green to some extent and, as a result,

it is not possible to distinguish from one to the other. He goes on to say that rather than

green buildings attracting higher rents and values, that non-green building, specifically

existing non-green buildings, attract a ‘brown discount.’ Two of the interviewees agreed with

this suggestion, with interviewee one stating, “I don’t believe that a building will be

considered prime if it doesn’t meet certain green standards.” Interviewee two stated that,

when appraising an investment, they applied a “brown discount” which was likely to be the

cost of bringing the property up to standard, such as works to increase the EPC rating.

Page 36 of 73


It is clear from the responses to the question on advantages that green buildings have over

non-green buildings is that the consensus among the respondents is that there are benefits

of going green when it comes to investing in property, in regard to both new build and

refurbished buildings. Previous studies have suggested that quantifying benefits of green

investment can be difficult, or when appraising an investment into a green building, yet the

results from this study are mixed. 41.67% of the survey respondents stated that it was

possible to separate out the green features of a building, whereas the interviewees

suggested that it was very difficult. Arguably the most measurable of the listed advantages

was higher rents, which was chosen by only 12.5% of respondents. The interviewees also

stated that they did not think green buildings would achieve higher rents.

The interviewees provided further insight, stating that intuitively green investment feels like

to right thing to do and there are benefits that are difficult to measure but, as French (2017)

argues, if green investments are not made, then buildings will suffer from a ‘brown discount.’

Perhaps if this study was undertaken from the opposite side and respondents were asked

what the disadvantages of non-green buildings were it would correspond with the

advantages of green buildings, and although this brown discount may also be difficult to

measure, the same intuition would apply, as mentioned by Interviewee two, that green feels

like to right thing to do. Interviewee two also raised an important point, that by providing a

green building, you are not excluding any potential tenants as occupiers who do not

specifically require a green building will still take a green building for other reasons such as

location, whereas an occupier who requires a green building will not take a ‘brown’ building.

4.5. Risk Premium Advantages

The respondents were asked if they agreed or disagreed with the statement "Green

buildings are a less risky investment than non-green buildings." See Figure 12. 41.67% of

respondents agreed with the statement with 45.83% stating that they somewhat agree. Only

8.33% disagreed, and one respondent selected ‘Don’t know.’ Although the respondents

were not asked to explain their answers, this is a strong indicator that the respondents

perceive green buildings to be a less risky investment, with a combined 88% either agreeing,

or somewhat agreeing with the statement.

Page 37 of 73


Figure 12: "Green buildings are a less risky investment than non-green buildings."

The respondents were also asked if, as a result of the advantages they had selected in the

multiple choice question, they thought that new build and refurbished green buildings

benefited from a reduced risk premium. See Figure 13 and 14.

Figure 13: As a result of these advantages, do you think that NEW BUILD green buildings benefit from a reduced risk premium?

Page 38 of 73


As a result of these advantages, do you think that REFURBISHED green buildings benefit from a reduced risk premium?

Yes No Don't know

Figure 14: As a result of these advantages, do you think that REFURBISHED green buildings benefit from a reduced risk premium?

The answers differed slightly between new build and refurbished green builds with 70.83%

answering yes for new builds and 62.5% for refurbished. 20.83% answered no for both new

builds and refurbished. This indicates that a large proportion of investors perceive green

buildings as lower risk. The respondents were then asked if they did think there was

reduced risk premium, to estimate how many basis points this would be. As can be seen

from Table 2, the answers vary widely but fall within the range of 10 bps to 150 bps for new

builds and 0bps – 100bps for refurbished. Some respondents answered that it was not

possible to say.

Page 39 of 73


New Build Refurbished25 25

Diffi cult to quantify. maybe 25 bps. Same as above. 25 bps.

25 25n.a 1005 25

[No response] 75 bps25-50 100

100 bps 25150 up to 15 bps10 25bps25 25

up to 20bps 0-1525 Same as above, diffi cult

0-25See above [Impossible

to quantify.]Very hard to put a 10-015

Impossible to quantify. [No response]25 [No response]

Table 2: Responses to “As a result of these advantages, do you think that NEW BUILD/REFURBISHED green buildings benefit from a reduced risk premium? If yes, estimate how many bps.”

La Salle Investment Management (2017, cited in Fixsen, 2017) suggest that green buildings

warrant a 65bps reduction in risk premium as a result of lower risk when investing in green

buildings as a result of various benefits such as increased lettability. Although the number

they have suggested cannot be confirmed, it appears that 88% of the respondents agree

that green investments are lower risk, with 70.83 agreeing there is a reduced risk premium

for new build green buildings and 61.5% agreeing the same for refurbished green buildings.

The survey responses provide an overall trend, rather than providing any detail, although

one respondent who replied that they ‘Didn’t know’ wrote in the comment box “Haven't seen

any evidence of this in the market as yet. Even though it is logical to expect.” This echoes

the comments by Interviewee two, that intuitively they feel there should be a difference, but it

is difficult to prove, and quantify what it would amount to.

When the interviewees were asked about risk premiums the answers differed slightly.

Interviewee two did not agree that there was a reduced premium due to the uncertainty

around investment in green and expected returns.

“What’s my pay off? What happens if in ten years’ time these improvements I made

are no longer the sort of improvements that those type of tenants want? Cos if you

are going for a kind of broad tenant base and you have got some green functionality

in your building and then ten years later, actually all the tenants that you were trying

Page 40 of 73


to attract now think that those green credentials aren’t really that green anymore and

would rather take another building, you’ve lost that. And if you don’t get the payback

… Normally I guess, most building improvements we expect payback probably over

fifteen or twenty years, not over five to ten years. So, that’s the challenge. How

quickly do you get a payback when you don’t even know what the payback is and

how long is that initiative gonna be the latest and best for that particular green

solution, and again, nobody knows, so…”

This statement from Interviewee two could be used as an excellent summary for what could

be called the ‘green problem.’ Preparation and capital expenditure are required to invest in

green initiatives and technology, yet investors are possibly preparing for something that may

not improve returns in the long term and hurt returns in the short term, in technology that

may be obsolescent in less than ten years, for regulation changes that may never happen or

may be much more extreme than expected. At the same time, they are not sure if it will

bring in higher rents, increase capital values or result in any of the other suggested benefits

in regard to letting the property and all of this must be justified to shareholders and clients.

Interviewee three also stated that he did not think there was a reduced risk premium adding

that one of the issues is that, in the short term, clients would not accept lower returns.

“I think that the challenge is investors aren’t prepared to take a lower return. That’s a

really really big issue from my side because it… A tenant is not going to pay me

more rent because I’ve got a sustainable building. An investor, if I turn around and

say you know what, I have given you a return X and I would have given you a return

of X + 25 bps or so but we have taken a more sustainable strategy, there is no

investment appetite at the moment from clients for you to actually take that lower

return.”

Echoing this, Interviewee stated that, as the market is perceived to be late cycle, the appetite

for green is not as strong as it was due to pressure on rents and returns.

5. Conclusion The aim of this research was to explore, from an investor’s perspective, the importance of

green features of a building and how these green features impact purchasing decisions. It

was also to investigate whether green buildings benefit from a reduction in risk premium and

if so, what factors led to this reduction. Five objectives were set at the start of the research

to satisfy the aim and research question. Each objective will be discussed in turn.

Page 41 of 73


5.1. Objective One

Explore investors’ definition of a green building

There are various definitions for green buildings with some defining a green building only by

sustainability or environmental impact and others including social and economic factors. In

addition to this there are other widely used measures such as EPC rating and BREEAM

accreditation. There is not an accepted industry definition and the survey results reflect this

with respondents stating that they use various measures to assess the green credentials of a

building. One respondent said they did not use the term green building at all as it was too

binary and one of the interviewees stated that it was not possible to look at just green

credentials of a building without also considering wellness.

It is clear from the secondary research and the data collection findings that investor

definitions of green buildings varies widely and that, as suggested by one interviewee, as

other issues become more prominent, such as wellness, it may not be possible to look at

only green features of a building without considering the social factors.

5.2. Objective Two

Examine whether a property being green impacts investor purchasing decisions

As awareness of climate change grows investor appetite for green investments has

increased. As a result of this, attitudes have changed within the commercial property

investment market with much more attention being paid to Environmental, Social and

Governance (ESG). The secondary research revealed a marked changed in attitudes

towards green investment and went some way to explaining these changes (World

Economic Forum, 2016, RICS, 2018). Where once green investment was driven by socially

responsible investors who were deemed to be ‘doing the right thing’, it has now moved into

the mainstream. The studies by RICS (2018) and The World Economic Forum (2016), which

looked into attitude changes over time towards green investment, both reported, firstly, that

investment in green buildings over non-green buildings has become more important, but also

that one of the main reasons for this was the reputational benefits for the company. They

both found that one of the main drivers to green investment was being seen as a responsible

company.

This was confirmed in the data collection with all 24 respondents answering that green

credentials of a potential investment were either important or slightly important, confirming

that they do impact purchasing decisions. In agreement with this, all three interviewees

stated that the reputational benefits were a key driver towards green investment. One

interviewee stated that ESG reporting was now a basic requirement to be taken seriously as

Page 42 of 73


an asset manager. JLL (2012, cited in Kucharska-Stasiak and Olbińska, 2018) reported that

ESG reporting requirements were only applying gentle pressure on investors to move

towards a greener portfolio however, as awareness of climate change has increased

exponentially over the past five to ten years, the data indicates that this pressure may be

increasing.

The interviewees were asked if investor appetite for green investment changes depending

on the strength of the market. They answered that the change in attitude towards green

investment is now so strong that market changes would not impact this however, one

interviewee went on to say that investors would not accept lower returns in the pursuit of a

greener investment. The UK is currently in a late cycle market. It may be beneficial to

repeat this study at another point in the cycle to see if attitudes towards green investment

were significantly changed.

5.3. Objective Three

Identify factors that may combine to create a risk premium advantage when investing in green buildings

As discussed above, one of the main drivers to green investment was found to be the

reputational benefits that come with being seen as a green investor, but does it also bring

financial benefits? Numerous studies have been undertaken in an attempt to identify these

benefits and also quantify each one. The potential advantages of green buildings suggested

in previous studies were:



Higher rents


Future proofed asset

Mitigation against future regulation changes

Reduced risk of capital expenditure due to obsolescence

Competitive advantage


(Ellison, Sayce and Smith, 2007; Lorenz and Lützkendorf, 2008, cited in RICS, 2018; Van de Wetering and Wyatt, 2011; Fuerst and van de Wetering, 2015; The World Economic Forum,

2016; Yang, 2016; La Salle Investment Management, 2017, cited in Fixsen 2017)

The results of these studies were varied. Although much of the research found that these

benefits existed, one of the main issues was the difficulty in quantifying them, as some are

easily measured, such as higher rents, whereas others, such as reduced void periods, are

Page 43 of 73


much harder to measure. Due to the nature of property, it is also difficult to ascribe a value

to one particular feature of a property. To look at this issue from the other side, it has been

argued that non-green buildings suffer from a ‘brown discount’ and that, rather than green

buildings benefiting from significant advantages over non-green buildings, non-green

buildings are at a disadvantage compared to green buildings. Thus, investing in either new

build green buildings or refurbishing existing stock reduces risk when it comes to the list

above, such as void periods and lettability (Ellison, Sayce and Smith, 2007; World Green

Building Council, 2013; Yang, 2016; French, 2017) rather than creating an advantage.

French (2017) argues that all new buildings are green to some extent and therefore, there

would be no premium for one new building over another, but a discount for an existing, non-

green building.

The survey results reflected this, with at least 50% of the respondents selecting each

advantage, apart from higher rents, which was only selected by 12.5% of respondents for

both new build and refurbed green buildings, which concurs with the findings by Fuerst and

McAllister (2011) and Yang (2016). One interviewee stated that, if there were two identical

buildings and one was green and the other wasn’t, the green building should attract higher

rents, but in reality this doesn’t happen, so it is impossible to test. One interviewee gave a

resounding no, and another stated that there were other reasons to invest in green buildings.

This really highlights the issues of measuring the factors that may contribute to a reduced

risk premium for green buildings. The data collection findings appear to show, in agreement

with Yang (2016), that intuitively green investment seems like the right thing to do from both

a reputational and financial perspective but proving this can be very difficult as many of the

benefits are intangible.

An important point made by one of the interviewees was that, although the benefits may not

be measurable, a green building is more lettable than a non-green building because it does

not exclude any of the potential tenant base. A potential tenant who does not specifically

require a green building will still let a green building for other reasons such as location,

whereas a potential tenant who requires a green building will not let a non-green building.

An interesting point that was reviewed in the secondary research and discussed with the

interviewees is whether investment in technology does future proof a building and reduce the

risk of capital expenditure due to obsolescence (Yang, 2016; La Salle Investment

Management, 2017, cited in Fixsen, 2017; RICS, 2018) or whether it may have the opposite

effect. In agreement with the report by The World Green Building Council (2013), the

interviewees stated that there is a risk in both investing and not investing in green

technology, arguing that it is difficult to justify the capital expenditure if firstly, it is difficult to

Page 44 of 73


know if the investment is the right thing to do and also, the benefits of investing to make the

building greener are not measurable. It appears that this is one of the barriers to green

investment. This also applied to future regulation changes. It is difficult to mitigate against a

potential risk that may never materialise or may be much more severe than expected, for

example.

Despite the apparent uncertainty, when the survey respondents were asked if they thought

that green buildings would benefit from a reduction in risk premium, 70.83% answered yes

for new builds and 62.5% for refurbished, with the estimates for new build ranging from

10bps – 150bps and for refurbished, 0bps – 100bps. The interviewees, however, were more

sceptical, arguing that it is difficult to say. As with the issue around obsolescence, they

stated that the issue is when, or if, the pay back from any additional expenditure would

materialise. La Salle Investment Management (2017, cited in Fixsen, 2017) suggested that

green buildings should receive a 65bps reduction in risk premium, due to the advantages

over non-green buildings. It is clear the findings from the survey, corroborate the findings by

La Salle Investment Management (2017, cited in Fixsen, 2017), that green buildings do

benefit from a reduced risk premium, but the interviewees were less sure. One of the

respondents said they had not seen any evidence of this in the market ‘Even though it was

logical to expect.’ Echoing the comments made by an interviewee on future proofing, there

seems to be a sentiment, or a gut feeling, that green investment is the right thing to do, both

reputationally and financially, but it is difficult to prove.

It would be beneficial to repeat this study, but to approach it from the other side to explore

the disadvantages of non-green buildings, asking whether non-green buildings suffer from

an increased risk premium. The combined results of both studies would provide a much

clearer picture.

5.4. Objective Four

Explore whether green factors can be separated from other factors in investment decisions

The European Valuation Standards (2016, cited in Kucharska-Stasiak and Olbińska, 2018)

state that, when undertaking a valuation, it is difficult to separate the green features of a

property from the others, such as location. Other studies reviewed in the secondary

research found similar issues, although some found evidence that energy efficiency may add

value as it is measurable (Meins et al., 2010; Fuerst and McAllister, 2011). Again, the main

issue is quantifying the benefits.

Page 45 of 73


The responses to the survey on this were fairly inconclusive, with less than half answering

than it was possible to separate value added by green features, and 29.17% answering that

it wasn’t possible. However, one of the interviewees stated that, rather than appraising

green features, a discount is applied for non-green features that will require investment such

as works that will improve the EPC rating. This reiterates the point made by French (2017),

who suggested that rather than green buildings commanding a premium over non-green

buildings, non-green buildings suffer from a ‘brown discount.’ Therefore, rather than

separating the green features out, an investor may appraise the loss in value as a result of

the non-green features.

5.5. Objective Five

Examine whether both new build and refurbished green buildings benefit from similar advantages

When green buildings are discussed in previous studies, a distinction is not made between

new build green buildings and existing stock that has been refurbished to make it green.

Therefore, part of this study was to examine if they both gain the same advantages, or

disadvantages.

The findings from the survey demonstrate that the refurbished buildings do benefit from

some of the same advantages as new build green buildings, although less respondents

overall selected the refurbished green building options. ‘Future proofed’ and ‘Protection

against future regulation changes’ had the highest responses for refurbed whereas ‘Future

proof’ and ‘Increased lettability’ had the highest responses for new build. This corresponds

with the secondary research as regulations, such as EPC ratings, are one of the biggest

risks to existing stock, especially if the regulations become more severe in the future.

Although ‘Increased lettability’ was one of the highest responses for new build, it may be that

all new builds benefit from increased lettability, and the green features of the building may

not impact this. This requires further investigation.

When asked if new build and refurbished green buildings benefit from a reduced risk

premium 70.83% answered yes for new builds and 62.5% answered yes for refurbished.

When asked to estimate how many bps, respondents gave a range of 10bps – 150bps for

new build and 0bps – 100bps for refurbished. From this it is clear that the respondents do

see similar advantages of green features in both new build and refurbished, though the

range given for new build is wider than refurbished. Although this gives a clear indication of

investor attitudes on this topic, further investigation is required.

Page 46 of 73


5.6. Further Research Recommendations

As this research was of an exploratory nature, key themes have been identified that require

further investigation. Although the data collection indicated that investors do believe there to

be a risk premium for green buildings, this study was based on investor attitudes. It would

be beneficial to undertake quantitative data collection in order to analyse sales data to

compare prices for green and non-green buildings, and also to identify if a reduction in risk

premium is applied to refurbished green buildings.

Another area requiring further exploration is investor appetite for green investment and

property cycles. This study has confirmed the strength of investor appetite for green

buildings however the UK is currently in a late-cycle market and there is a suggestion that

investor appetite for green may change if the UK was at a different point in the cycle.

Another key theme identified is the difficulty for investors when making decisions on

investment due to obsolescence. Due to time constraints it was not possible to interview all

respondents, however it would have been beneficial to gain more data on investors views

regarding investment in green technology, risk and obsolescence.

Two of the interviewees raised an interesting point that was outside of the scope of this

study. They argued that many investors build new green buildings and as a result they

appear to have a very green portfolio with very strong environmental reporting. However,

the interviewees argued that, in order to build these very green buildings, they are

sometimes demolishing buildings that were perfectly useable and ignoring the carbon that is

already captured in that building. Therefore, the actions they are taking are not sustainable,

but on paper they appear to be. This would be a valuable area to explore further.

As mentioned previously, it would beneficial to undertake this study again, but to explore

whether non-green buildings benefit from an increase in risk premium. The combined

results of both studies would give a much clearer picture on investor attitudes towards

investment in green buildings.

Page 47 of 73


6. References Baum, A (2015) Real Estate Investment, 3rd Edn. Oxon: Routledge

BBC News (2019) UK Parliament declares climate change emergency. Available at:

https://www.bbc.co.uk/news/uk-politics-48126677 (Accessed 6 May 2019)

BREEAM (no date) What is BREEAM? Available at: https://www.breeam.com/ (Accessed 8

June 2019)

Ekinci, Y (2015) Designing Research Questionnaires. London: Sage

Ellison, L, Sayce, S and Smith, J. (2007) Socially Responsible Property Investment:

Quantifying the Relationship between Sustainability and Investment Property Worth, Journal

of Property Research, 24(3), pp. 191–219

Fixsen, R (2017) ‘The Price of Green’, IPE Real Assets, September/October. P.24

French, N. (2017) The valuation of sustainability, Journal of Property Investment and

Finance, Vo. 35(4), pp 354-355

Fuerst, F and McAllister, P. (2011) Green Noise or Green Value? Measuring the Effects of

Environmental Certification on Office Values, Real Estate Economics, 39(1), pp. 45–69

Fuerst, F and van de Wetering, J. (2015) How does environmental efficiency impact on the

rents of commercial offices in the UK? Journal of Property Research, 32(3), pp. 193–216

Ghauri, P and Gronhaug, K (2010) Research Methods in Business Studies, 4th edn. Essex:

Pearson

GRESB (2018) 2018 GRESB Real Estate Results. Available at: https://gresb.com/2018-

real-estate-results/ (Accessed 8 June 2019)

Isaac, D and O’Leary, J (2012) Property Valuation Principles. Basingstoke: Palgrave

Macmillan.

IPF (2017) Costing Energy Efficiency Improvements in Existing Commercial Buildings.

Available at: https://www.ipf.org.uk/resourceLibrary/costing-energy-efficiency-improvements-

in-existing-commercial-buildings--october-2017--full-report.html (Accessed 14 June 2019)

JLL (2018) Global Real Estate Transparency Index 2018. Available at:

https://www.jll.co.uk/en/trends-and-insights/research/global-real-estate-transparency-index-

2018 (Accessed 7 June 2019)

Page 48 of 73

https://www.jll.co.uk/en/trends-and-insights/research/global-real-estate-transparency-index-2018

https://www.jll.co.uk/en/trends-and-insights/research/global-real-estate-transparency-index-2018

https://gresb.com/2018-real-estate-results/

https://gresb.com/2018-real-estate-results/

https://www.breeam.com/

https://www.bbc.co.uk/news/uk-politics-48126677


Kauko, T and d’Amato, M (2008) Mass Appraisal Methods. An International Perspective for

Property Valuers. Chichester: Wiley Blackwell

Kucharska-Stasiak, E and Olbińska, K (2018) Reflecting sustainability in property valuation –

Defining the problem. Real Estate Management and Valuation. 26 (2), pp. 60-70

Livingstone, N and Ferm, J. (2016) Occupier responses to sustainable real estate: what’s

next? Journal of Corporate Real Estate, 19 (1), pp. 5-16

London Borough of Camden (no date) Planning Guidance: Sustainability. Available at:

https://www.camden.gov.uk/ccm/content/environment/planning-and-built-environment/two/

planning-applications/making-an-application/supporting-documentation/sustainability-

statements-design-and-construction/ (Accessed 19 October 2018)

Meins, E, Wallbaum, H, Hardziewski, R and Feige, A. (2010) Sustainability and property

valuation: a risk-based approach, (2010), Building Research & Information, 38(3), pp. 280–

300

Ministry of Housing, Communities and Local Government (2018) National Planning Policy

Framework. Available at: https://www.gov.uk/government/publications/national-planning-

policy-framework--2 (Accessed 20 May 2019)

RICS (2013) Sustainability and Commercial Property Valuation, 2nd edition. Available at:

https://www.rics.org/uk/upholding-professional-standards/sector-standards/valuation/

sustainability-and-commercial-property-valuation/ (Accessed 9 June 2019)

RICS (2018) Changing priorities in investor decision-making: the sustainability agenda.

Available at: http://www.rics.org/uk/knowledge/research/research-reports/changing-

priorities-in-investor-decision-making-the-sustainability-agenda/ (Accessed 9 June 2019)

Saunders, M, Thornhill, A and Lewis, P (2009) Research Methods for Business Students.

Harlow: Pearson Education

Tett, G (2018) Green investing generates returns, not just a warm glow. Available at:

https://www.ft.com/content/931b8c88-43aa-11e8-93cf-67ac3a6482fd (Accessed 18 May

2019)

United Nations (No date) Sustainable Development Goals, Knowledge Platform. Available

at: https://sustainabledevelopment.un.org/milestones/humanenvironment (Accessed 6 May

2019)

US Green Building Council (no date) Green Building Leadership is LEED. Available at:

https://new.usgbc.org/leed (Accessed 8 June 2019)

Page 49 of 73

https://new.usgbc.org/leed

https://www.ft.com/content/931b8c88-43aa-11e8-93cf-67ac3a6482fd

https://www.rics.org/uk/upholding-professional-standards/sector-standards/valuation/sustainability-and-commercial-property-valuation/

https://www.rics.org/uk/upholding-professional-standards/sector-standards/valuation/sustainability-and-commercial-property-valuation/

https://www.gov.uk/government/publications/national-planning-policy-framework--2

https://www.gov.uk/government/publications/national-planning-policy-framework--2


van de Wetering, J and Wyatt, P (2011) Office sustainability: occupier perceptions and

implementation of policy. Journal of European Real Estate Research, 4 (1), pp. 29-47

Warren-Myers, G. (2013) Is the valuer the barrier to identifying the value of sustainability?

Journal of Property Investment & Finance, 31(4), pp. 345-359

World Economic Forum (2016) Environmental Sustainability Principles for the Real Estate

Industry. Available at: http://www3.weforum.org/docs/GAC16/CRE_Sustainability.pdf.

(Accessed 18 May 2019)

World Green Building Council (2013) The Business Case for Green Buildings. Available at:

https://www.worldgbc.org/sites/default/files/Business_Case_For_Green_Building_Report_W

EB_2013-04-11-2.pdf (Accessed 13 June 2019)

Yang, H (2016) The Financial Performance of BREEAM Certified Buildings in the United

Kingdom. Real Estate Finance, Fall, pp. 57-73

Page 50 of 73

https://www.worldgbc.org/sites/default/files/Business_Case_For_Green_Building_Report_WEB_2013-04-11-2.pdf

https://www.worldgbc.org/sites/default/files/Business_Case_For_Green_Building_Report_WEB_2013-04-11-2.pdf

http://www3.weforum.org/docs/GAC16/CRE_Sustainability.pdf


7. Appendices

7.1.Appendix 1: Survey

Copy of the survey sent to respondents

Page 51 of 73


Page 52 of 73


Page 53 of 73


Page 54 of 73


7.2.Appendix 2: Covering Email

Covering email sent to respondents.

Dear

I am studying MSc Real Estate at Kingston University and am currently undertaking my final research project. The topic I am researching is whether green office buildings benefit from substantial risk premium advantages compared to non-green buildings. In order to gain further insight into this I have created a survey to be completed by respondents who are involved in the decision making process when purchasing office investments.

I would be very grateful if you could take a few minutes to complete the survey. There are 18 questions and it should take no longer than 5 minutes.

[SURVEY LINK]

The survey does not include any commercially sensitive questions but aims to find out how green features of an investment influence investor purchasing decisions.

The findings will be confidential, and all data will be securely stored and then deleted at the end of the project. The completed project is not for publication and will be marked confidentially in line with university guidelines.

To gain a better understanding of the topic I also intend to undertake a number of short interviews with a few of the respondents. If you would be willing to meet with me for 30 minutes to discuss the topic further, please either enter your details into the final question on the survey or reply to this email to discuss with me directly.

Thank you very much for taking the time to assist me with this project.

Kind regards

Page 55 of 73

Respondent Number

Date survey complete What is your job role?

What type of property company do you work for?

How long have you worked in the property sector?

24 07/12/2019 16:05 Fund manager Property consultant 10 - 20 years23 07/08/2019 20:15 Development Director Private Developer 20 - 30 years22 07/08/2019 11:18 CEO Fund/ Private Property Company 20 - 30 years21 07/08/2019 10:17 Principal Investor 10 - 20 years20 07/08/2019 08:43 Director Property Company 20 - 30 years19 07/08/2019 08:35 Transaction Investment Manager 10 - 20 years18 07/08/2019 06:32 Fund Manager Institutional Investment Manager 20 - 30 years17 07/07/2019 17:24 Fund Manager Investment Manager 10 - 20 years16 07/05/2019 18:21 Director Commerical. Offi ces and warehouses 10 - 20 years15 07/05/2019 16:51 CEO Private property company 20 - 30 years14 07/04/2019 12:48 Investment Director High net worth individual 30+ years13 07/03/2019 23:23 Development Director Private investor / developer 30+ years12 07/03/2019 20:31 Fund Manager Investment Manager 30+ years11 07/03/2019 12:32 Senior Fund Manager Real Estate Fund Manager 20 - 30 years10 07/03/2019 11:39 Investment director Private Equity 20 - 30 years

9 07/03/2019 11:38 Asset Manager Institution 20 - 30 years8 07/03/2019 07:21 Investment/Development Director Private Company 20 - 30 years7 07/02/2019 14:21 chairman Investment Management 30+ years6 07/02/2019 09:49 Sustainability Director Real Estate Investment 0 - 10 years5 07/01/2019 19:07 Portfolio Manager Asset Manager 10 - 20 years4 07/01/2019 17:11 Head of UK Real Return Assets Investment Manager 20 - 30 years3 07/01/2019 17:00 Head of Sustainability Investment Manager 10 - 20 years2 07/01/2019 16:23 Fund Manager Property fund manager 20 - 30 years1 07/01/2019 16:19 Fund Manager Institution 20 - 30 years


7.3.Appendix 3: Survey Respondents

Page 56 of 73


7.4.Appendix 4: Transcript - Interview One

Transcript - Interview One

12.07.2019 3pm

Via phone call.

Interviewer: So, first of all, for a bit of context, could you umm give me a small overview of your role and also your investment strategy and the involvement of any sort of sustainability credentials or green initiatives within that investment strategy?

Respondent: Yes sure, so I am a Fund Manager at XXXXXXX in the Real Estate Team. I look after two funds. One is a corporate pension fund, umm, where the sponsor is very interested in sustainability. Partly because of their size. They obviously get lots of pressure from the government, but also just as a corporate body, they’ve got a lot of interest in it. And then, the other fund is a listed REIT, umm, which is focused on delivering an attractive level of income to investors and it’s mainly, well it’s listed on the London Stock Exchange, invests in UK commercial property. The investors don’t particularly have a strong view on, umm, ESG, but as a house, the way we want to run funds, it’s central, so it becomes an important part of it and personally it’s something which I have always been interested in.

I: Okay. So do you think that peoples appetite for green, umm, changes on whether we are in a strong market or not?

R: No, not particularly, I think there is now a real change in attitude. I think that previously that may well have been the case, umm, it was a fad in stronger markets, but now I think people’s attitudes have changed so much that they are taking a longer term view and by undertaking sustainable choices they believe that they will generate better value over the long term.

I: Mmm, and do you think that reputational benefits of green are quite a strong driver towards that?

R: Yes, I think reputational is part of it. Increasingly, in order to win clients’ money, one has to be able to demonstrate that ESG is taken sensibly and responsibly and, sort of, is an integral part of the organisation and that you actually do what you say you are going to do. But I think it moves beyond the reputational, actually, you know, we are still driven by performance but I think that we have got to the stage now where one of the ways of delivering performance for clients is by having ESG at the centre of what you do.

I: So, you did say in your survey response that you think that green buildings benefit from risk premium advantages, umm, but do you think, I mean, for example, if you have a building that’s prime anyway, if it was green, I mean, prime is really the peak anyway, do you think there is an extra bit for green, or do you think you would have a green yield and a prime yield if there was anything extra added by green?

R: The reality is, I think that is unlikely, because I don’t believe that a building will be considered prime if it doesn’t meet certain green standards.

I: Right.

R: So actually, if you had a building which didn’t have LED lighting, umm, had poor, had very old boilers, which were inefficient and poor insulation, I think all of those factors would mean that it wasn’t considered a prime building.

Page 57 of 73


I: Right, so…

R: So I think it is very difficult to make that differential, but what I would say is, if you had, umm, two identical buildings, which were both good quality, but one could seem to be fulfilling a sustainability agenda and the other wasn’t, then I think there are advantages. It may not be in yield but might be liquidity, it may not be in rent but in speed of letting. It is more likely to be the first choice, in every case.

I: Okay, so I, that was one of the interesting points actually that came out of the survey, was that very few of the respondents said that they thought a green building would get higher rents, a refurbed or a new. Even though a lot of the academic research suggests that occupiers want green buildings but won’t necessarily pay a premium for it. Is that the same as in your experience?

R: Yes, it is part of their occupational choice making. So, umm, their preference is to move into that building. Are they prepared to pay more for it? No, because they feel they have probably got the choice. They don’t have to pay more for it. Umm, but it is more likely to let quickly. It is more likely to have the lowest incentives. As opposed to just a headline rent.

I: Okay. Umm, just checking through my questions to make sure I’m covering everything off. So you said that, sorry, one of the funds you look after is a REIT, and do REITs have, is it part of the requirement of a REIT to report out sustainability targets, even if the investors aren’t that…

R: Yeh, so within the listing rules and corporate governance requirements for listed companies, that there is a need to report.

I: Ah okay. Bear with me one second. Do you undertake any developments or is it just investment?

R: I generally don’t do speculative development. We do refurbishments etc.

I: And do you normally refurb under a BREEAM rating or another accredited scheme?

R: Yes, so we would get a BREEAM. I have to say that I feel that most of these current measures are far more dictated by box ticking than they are by, umm, action. And so, you know, people just sort of, I think, play games around BREEAM etc. Instead, the approach I take is to make sure that a central part of the decision making is, are we optimising our opportunities for sustainability? So, you know, three years ago that was making sure that we specified LED lighting, because most people weren’t. But now it’s looking a longevity, you know, do we need to replace things. So, I think there has been far too much stripping out perfectly good equipment from buildings, floors etc, umm, and actually looking at what the optimum solution is. Umm, whether we can reuse, and one thing, things I find quite annoying at the moment is everyone is going for VRF to get a slightly better EPC rating but actually if you look from today, in four to ten years, the more efficient operating system will probably still be four point fan coil, umm, because of the additive of the refrigerant that needs to go into the VRF. And, so to try and make sure we are not just doing something to tick a box day one. Something that is going to provide the best operating system, the most efficient and sustainable operating system for the occupiers over, sort of, ten to fifteen years.

I: Okay, yeh I would tend to agree with you about BREEAM, that the bar is set quite low and, you know, it is just a tick box. And also, the ratings change don’t they, so what was a BREEAM excellent four years ago is not anymore. So, and do you have any requirements for your tenants, so when they come in a do their fit out, that they, that is doesn’t lower the sustainability measures that you have put in place? If they do an inefficient fit out.

Page 58 of 73


R: Yeh, we’re getting there. So, we have spent the last year, sort of, trying to improve fit out guides. Umm, we encourage. At the moment, I wouldn’t say we ban poor behaviour, we encourage good behaviour. I think we are moving into a situation where probably we would not approve a fit out if we felt that it was detrimental to the sustainability attributes. Umm, and I haven’t quite worked out yet whether or not we would end up paying for it to be sustainable or whether we just say to the tenant, refuse to give consent to a tenant until they make sustainable

I: Right.

R: There’s that element of taking a horse to water, but it’s got to do the rest. [Laughing]

I: I know, exactly. And you can’t end up without any tenants because you are refusing all of the fitouts, I suppose. Get a reputation for it. Umm, let’s see. There aren’t a huge number of questions that I wanted to cover. Umm, that might be almost it. Just having a quick look through my list. No, I think that’s it. Unless there’s any further points you’d like to make on the topic.

R: No, I mean it’s interesting you were talking about extra rent. I’m just thinking that the number of buildings we’ve bought where we have bought it with the deliberate intention that we are going to lose a bit of floor area which may have been rented in the past to provide amenity. So improved showers, improved car, umm, bike storage and changing facilities, perhaps yoga studios, etc. Umm, and not because of additional rent for having it but if we don’t have it we think that performance will be detrimental.

I: Yes, and the weaker the market, if there is a lot of options, if there is a lot of choice you are strengthening your competitive edge.

R: Yes. And increasingly we have seen a move away from it just being the CFO choosing a new office to HR being quite involved so the office is often used as a means of retention and recruitment of talent.

I: Mmm, yes, definitely.

R: And actually, my age group, is obviously just a money grabbing lot who doesn’t really care for the environment that they work in but today’s youth place quite strong value on the environment they are working in, and if it meets their personal values, umm, and actually they will make job choices on the back of that type of thing now. So, we are seeing that as increasingly important.

I: Yes, umm, I think it has an impact on the whole culture of the company, doesn’t it, how people interact with each other. Yes, it’s very interesting. I think it’s probably one of the things that will come out of this is that it’s not really possible anymore to look at green on it’s own, without the social side.

R: Yeh, I mean, to be honest I think that green is almost old hat. Apart from the fact that I think that there is lot’s of change still to come so, you know, how you deal with umm, changes to vehicle type, apps and charging and that type of thing, umm battery, battery charges for cars, but actually, it’s about wellness now, not just about having a low carbon building, it’s the whole environment, of wellness and tenant amenity, etc, you know, it’s not just a question of what type of light fittings you put it.

I: Mmm, I think I would agree with that, definitely. Okay, well I think that is that. Thank you very much for taking the time to talk to me.

Page 59 of 73


7.5.Appendix 5: Transcript - Interview Two

Transcript - Interview Two

19.07.2019 10am

Via phone call.

Interviewer: So, I am going to ask a few general questions and then I’ll go, just ask you to expand on some of the answers from the survey if that’s okay?

Respondent: Yes, sure

I: Okay, so firstly, for a bit of context, could you give me a short overview of your role and also your investment strategy and the involvement of any sort of sustainability credentials or green initiatives within that investment strategy?

R: Okay, so sorry, say that again because you broke up a bit at the beginning. More detail on my role and something about strategy.

I: Uh yes, more detail on your role and, umm, and also anything about your investment strategy that involves sustainability credentials or green initiatives. By the way, without mentioning who you work for, so I do not have that on the recording.

R: oh right, okay. Umm, yes, so I am responsible for all our umm long income and inflation matching strategies which total, in asset management terms, just over £3 billion. I am also responsible for all our alternative assets strategies. So that would include residential, healthcare, umm, and others for want of a better expression. In terms of my involvement with how that feeds into our sustainability agenda and strategy, we have a head of sustainability, who coordinates all our funds, how they report sustainability and we have various metrics within those funds to try and achieve, you know, improve targets. Umm, we have had those for a number of years. We also contribute to the GRESB surveys which we have I think since they first began. An there is a sort of additional, I Know its not technical in a sustainability sense but it is in a sort of responsible property investment sense, we are just about to launch an impact proposition which will include elements of sustainability and environmental improvement.

I: Okay. Umm, and you said that you do environmental reporting. Do you, umm, is that, do you undertake that because investors require that. Is the appetite of investors in the fund quote strong for…

R: Yes, I think its been two fold. I think investors themselves; some are much more engaged in this than others. Investors themselves have, umm, over the last… I’ve only been here for, uh, just over a year but my two previous roles, umm, were with property investment businesses and both those were, umm, sort of getting to grips with the sustainability agenda and the demand, increasing demands, from clients. I think the difference here to maybe those businesses is our business here is quite single account defined benefit dominated so we have sort of like twenty single account clients most of whom are corporate defined benefit pension schemes, umm, and therefore you have a much more direct relationship with your client than perhaps a pooled fund would have. Umm, so that’s perhaps one reason why we have been more engaged in it, I think, than certainly my previous two employers. Although, they were engaged but in a slightly different way. Umm, so clients have been demanding it and also, umm, consultants. So, the actuarial consultants, like, you know the

Page 60 of 73


big ones, like Aon Hewitt, Towers Watson, Mercers. Umm, they’ve probably slight, but I think they were led by clients as apposed to leading clients. But they now require updated sustainability reporting across our funds. So when they rate us, they don’t just rate us for investment performance, they rate us for sustainability as well. And that is almost a separate conversation.

R: So, do you think then that the benefits to your reputation of being a sustainable investor are quite important?

I: Massively. I mean, yeh, I think to start with there was sort of a reluctant acceptance that clients wanted to know about it. I think there was a growing, umm, sense that, you know, that it meant something from an investment performance perspective because you know, there is now growing data around functional obsolescence, rental sustainabilities and other things in, you know, which are highly correlated to positive sustainable criteria for real assets. Umm, so I think it’s, it was probably more conceptual piece to start with and investors certainly defined benefit schemes who are very focused on their pensioners it’s quite a different, kind of, mind set with a defined benefit pension scheme who are effectively, particularly a corporate one, you know, they, these are the people they used to employ, umm, whereas defined contribution schemes are quite often managed by third party managers or they are, the pensioners are much more distant in that relationship. So, I think defined benefit pension schemes have been keen to see that sort of better world in retirement fulfilled and part of that is around, is around sustainability.

R: Okay, and do you think, umm, investor appetite for green changes depending on the strength of the market? People are more confident in returns and they’re more likely to allow a bit kore thought for green, whereas if they are more worried about returns, maybe that’s less important?

I: Umm, yeh I think, being honest, it probably does go a bit cyclically depending on where the market is. Umm, I would say at the moment, you know, we are quite late cycle, umm, so there is probably less, you know, general interest in sustainable buildings. You know, there is pressure on rents generally and you know, from an occupier perspective, I think… I think investors probably aren’t developing as much as they have been in previous cycles and therefore, they are probably not thinking about, umm, the sustainability criteria of buildings. That said, the government are, you know, there are a number of sort of, push factors in terms of sustainability so, you know, government regulation is increasing, umm, the cost of utilities is increasing, umm, the cost to occupy buildings is increasing generally. And seen as less necessary to, sort of, decentralise businesses these days. Umm, particularly in the office sector. Umm, and also, I suppose the cultures of businesses are changing, so you know, you are seeing a much more engaged employee community around sustainability, wellness, you know, what does my building do for me? kind of thing. Umm, and in a world where we have got, obviously, very low employment rate, sorry, unemployment rate, get it the right way round, umm, you know, there is a huge war on talent, particularly in largely urban centres like London and the bigger regional markets. And I think, for that reason, employers want good buildings because in a lot of ways, certainly for a, umm, you know working in the financial services world, as I have done for many years, your, you know, the only tangibility of your brand is often your, to your employees, is often your building. You don’t really, you know you don’t have a product. You’re not Coca Cola. You don’t have a sense of who you are, you know, the building is quite often the only way that an employee can get a sense of the culture of a business. I think that’s a demographic change in mentality from occupiers that will continue. Particularly, as business space becomes more concentrated and less, you know, probably less necessary for a lot of businesses.

Page 61 of 73


I: Mmmm, okay, yes that’s really interesting. Umm, and then, just to go on to your survey answers. In the survey you said that you are current employer defines a green building by, umm, an accredited rating. Is that the only measure you use or is it much more flexible than that really?

R: Umm, we, I mean we do use BREEAM. Umm, you know, EPCs we take with a pinch of salt. Umm, we do our own assessments of buildings. Umm… We don’t, we probably don’t use metrics in a way, we use some of the green buildings council, kind of metrics, we probably haven’t got… So, for example, communication and data we use a company called Wired Scored, umm, who provide us with a real analytical breakdown of the quality of the building’s data and it’s ability to buy more data and that side of things. So, but we don’t do that with environmental issues but we do, score, we do basically look at the current environmental impact of a building, the potential to change that and that’s when we start to, we have a specific business plans, you know, for sustainability, for each of our assets, umm, and that would include things like, can we put photovoltaics on the roof, can we, you know, change the lighting systems, can we improve the air handling systems and the efficiencies of those, umm, so all those sorts of things come into it; waste water and other things. Umm, and also, we have a very strict sustainable criteria for new buildings and refurbishments, so umm, I’m probably not knowledgeable enough on all these things to be able to run you through them all but in terms of the paint qualities, in terms of the types of materials used, sourcing those materials locally, waste to land fill, you know, all those sorts of things are very much part of our procurement requirements. And that gets fed into our investment committee for approval, so if we are reviewing a refurbishment for an asset, it will always state in that document, whether or not the specification complies with our sustainability criteria.

I: Okay, great. Umm, and then, one of the questions we asked, we asked? I asked. Was, umm, whether green investments were less risky generally. You said somewhat agree…

R: Mmmmm

I: …which most people said. I know it’s a bit of a, it’s difficult to ask the right questions in a survey because you don’t want to put people off by leaving them all open ended answers but umm, is there anything you could add to that?

R: Well, I think this sort of different, umm, there is some different research around the cost and the performance of environmental buildings, um, you know, in financial terms. So, you know, what’s the pay back of, you know, a BREEAM excellent building, particularly in, kind of, a refurb sense. If you do a full refurbishment on a building what, and you go the extra mile to do things that are more sustainable, do you get that back in rent? And… I think you probably don’t. Uhh, by and large you don’t, because the cost of doing some of things, particularly in existing buildings, is difficult. Umm, and one thing we are very keen to make sure we don’t do is just tear down existing buildings to put up very green ones, because of the huge embedded carbon in existing buildings. When we look at carbon impact of development, we look at the existing embedded carbon in the buildings that we have. So, you know, that’s net loss. In other words, if you, you know, tear it down and put up a new building, you have already lost all of the carbon you have already effectively paid for. So, umm… You know. So in terms of if they are more risky or less risky, I… Intuitively, you feel, over time, functional obsolescence is gonna be lower, certain tenants are gonna be more attracted to buildings that are environmentally sustainable and of a certain quality. Some, you know, frankly, won’t care less. Umm, and where the building is, is probably primary defining factor. Umm, sure, if you had two buildings next door to each other and one was green and the other one wasn’t, then one would hope the green one would let more

Page 62 of 73


frequently, it would lose fewer tenants, it would command more demand, and perhaps more rent. Umm, but most of that is, I think, more intuitive than real. I don’t think the data, I don’t think the data is quite clear enough actually, to see that in practice. And, in the UK, because of planning policies, we don’t have a hugely mobile built environment. Umm, if you look at the buildings that go up, yes, you get new buildings in cities going up and they will be more sustainable than old buildings but its very hard to define why the tenant went there because if they only went there because it was a green building, they probably went there because it was the right format, it was in the right location, it had the right specification and everything else. The environmental quality is probably the last on the list, to be honest.

I: Yes, and a lot of the research says that, all new buildings are green anyway, it’s just a part of a new building. To some extent, you know. Maybe not the most sustainable buildings, but they will all have some level of green credentials.

R: Yeh, they will. I suppose, I mean they are still. I think, when I think of our building here, which is only, it must be under twenty years old, because I can remember it being built. It is therefore, in the UK terms, its probably relatively modern but it’s not the cutting edge, but you know, it’s over lit, umm, lots of empty space, that is being heated or cooled or lit or you know, whatever. Umm, it’s probably quite an inefficient building in an environmental context. Umm, but will anybody, will it be possible to change that. Probably a bit. Will anybody do it? Umm, well it’s multi-let so it would require the landlord to do it and then it would require all the tenants to pay for it. You know, its probably the last thing on their list, really. You know, unless they were doing a full refurbishment and at the moment, I think those are fairly few and far between. And we definitely, we are definitely in a part of the cycle now where new buildings are becoming more difficult to justify and if you are going to take letting risk and development risk, people, I think are doing more with refurbishments which will naturally constrain their ability to deliver, deliver really green buildings.

I: Mmm, umm, so one of the… Interestingly, on the survey, very few of the respondents thought that green buildings, either new or refurbed, would achieve higher rents than a non-green buildings.

R: Mmmmm

I: You did tick higher rents, obviously, it was a yes or no answer, not yes but… So, we have obviously covered that a bit in the last question.

R: Umm, yeh. I think it makes… I think it’s hard to say they wouldn’t. I mean, I’m working on the basis that there are two identical buildings next door to each other, you know. As soon as you go into different buildings in different locations, then it’s almost impossible to say whether it’ll take more rent because it’s green or because it is where it is. I just think if you had two otherwise identical buildings next door to each toher, the one that is green, in inverted commas, will have lower running costs or appeal culturally to a broader.. . It’ll either, the thing is, you don’t design away the demand, you know, I find that. You know, the most testosterone fuelled, couldn’t give a damn, Trumpesque, kind of, capitalist business would take green building. You know, they are not, not gonna take a green building because it’s too fluffy. They’ll take a green building and they will take an ungreen building.

R: A coal powered building….

I: Absolutely, whereas, you know, a business that is more culturally aware, you know, more culturally, I don’t know, environmentally conscious, maybe has a younger workforce.. You know, they will also take a green building, but they might not take the, the coal fired building. So, surely, you are not excluding anybody with a green building and you might be increasing

Page 63 of 73


the potential tenant numbers so surely a green building that’s otherwise identical to another non-green building will attract a higher rent because there will be better, there will be more rental attention. I can’t put that in numbers, I can’t say it’s gonna get 10% more rent but it should have higher demand and therefore be able to command a higher rent.

I: Hmmm, It is interesting. A lot of the research seems to show that there aren’t many benefits to green buildings but everybody’s, sort of, gut feeling is that is the right thing to do.

R: Yeh. I think the tricky thing about it is, is knowing, because you never have two identical buildings, you never have a test, you know, in a kind of experimental sense. You don’t have two buildings, you go right, they’re identical, I’ll make one green and I won’t make the other one green and then I’ll look at what the rents do and where the tenant demand is, what the renewal propensity is… So the data is really hard and when you are faced with, particularly in a late market position when you are not really sure where rents are gonna go you want to be in and out of a development or a refurbishment really quickly, the idea of having to go through a non-standard procurement process to get some, probably more expensive, bits to your building that are going to make it more green at the end are probably the last thing you think about. And because, you don’t know what, you know, what the rental difference will be. It might be nothing, it might be 2p a foot, it might be 50p a foot, it might be a pound a foot. But you just don’t know. So, it’s really hard to know what the payback is going to be. Umm, and people just revert to what they know, don’t they, in those sort of situations and go with what we have done for centuries.

I: And also, just try and reduce the costs I suppose. It’s what it normally boils down to. You can have as many sustainability policies as you like but at the end of the day you are trying to build it for as little as possible, really.

R: Absolutely. Because it is seen as a landlord, the development is a landlord cost and until the tenants pay, you know, specifically demonstrate that they will pay for green functionality then, you know, landlords aren’t gonna do it, are they, cos as I say, they can’t see, they can’t directly correlate the payback.

I: Mmmm, okay. In the survey, I asked about if there was a reduced risk premium for green refurbed buildings, which was another very hard to answer question. It’s just, sort of, interesting to get the trend across the survey. So, most of the respondents said there would be and then gave very varying answers to that. Uhh, but I suppose, is that another thing that is just impossible to quantify?

R: Yes, it is because, I think, that is more difficult to quantify because I think that there is a perceived functional obsolescence within green improvements. So, on the one hand you say a green building costs less to run, in inverted commas, should be more attractive to a broader range of tenants or should be attractive to a broader range of tenants, so for all of those reasons you think yes, I can see a green building versus a non-green building being less risky per se, but as soon as I start greenifying a building I don’t know whether those green, those green improvements are going to be, you know, are going to be, ten years down the line, will people suddenly go, oh you mean you’ve got photovoltaic cells on the roof. Why haven’t you got these new wacky, I don’t know, self-charging drones or something. It’s, there will be something, that will… You know, again people, particularly developers, if you think of the sort of age group of most people who make development decisions on buildings, they are probably in their forties or fifties. They probably have learnt how to develop buildings from people, you know, who grew up in the heyday of the eighties in terms of development knowledge. So, that’s how we kind of, will build buildings like we did in 1982, really. Umm, yeh, with a few changes here and there, but umm. So, I think until

Page 64 of 73


you start to see more, you know, a kind of, I suppose the tricky thing is that these are quite bit capital decisions. You know, it comes back to that. What’s my pay off? What happens if in ten years time these improvements I made are no longer the sort of improvements that those type of tenants want? Cos if you are going for a kind of broad tenant base and you have got some green functionality in your building and the ten years later, actually all the tenants that you were trying to attract now think that those green credentials aren’t really that green anymore and would rather take another building, you’ve lost that. And if you don’t get the payback, you know, you don’t… Normally I guess, most building improvements we expect payback probably over fifteen or twenty years, not over five to ten years. So, that’s the challenge. How quickly do you get a payback when you don’t even know what the payback is and how long is that initiative gonna be the latest and best for that particular green solution, and again, nobody knows, so… That, I think, is what puts people off.

I: Yeh, it is difficult. Ans, do you, umm, see anything, any interest in green from the lenders?

R: Umm, some more than others, yeh. I mean, I think umm you know, that the number of green bonds have been issued and you know, different ways of financing green improvements to your buildings. Umm… You know, the feed in tariffs were obviously a very easy way for lenders to look, well investors to look at the kind of economic payback from an environmental improvement. Since those have been, you know, largely removed or certainly significantly reduced I think the sort of momentum in that market has deteriorated, which is a shame, because actually the cost of money in that market has massively fallen. So, ten years ago when, you know, we were looking at PVs on rooves and feed in tariffs and all the rest of it, you know, the paybacks were very very advantageous. Umm, but the cost of the kit was pretty high so your, you know, you were getting internal rate of return of nine or ten percent for index linked government backed income which was probably twice what you would have expected at the time. Now that maybe five percent price for that income stream is, well government income now, I mean, in nominal terms, so, you know, gross of inflation is two, two and half maybe, in umm, you know, in real estate. Umm, so you know, the irony is the government could continue to fund very cheaply the cost of government borrowing has fallen massively so their cost of funding feed in tariffs is could be a lot cheaper today that it was ten years ago but they have no appetite to do it. Umm, I mean, we’d pile into it in huge volume and I know a lot of our piers would if it was still available.

I: Okay. I did have some more questions but I think we have probably covered them all within the other questions. Did you have anything else you’d like to add?

R: No, I don’t think so.

Page 65 of 73


7.6.Appendix 6: Transcript - Interview Three

Transcript - Interview Three

19.07.2019 11am

Via phone call

I: First of all, as I mentioned, without mentioning who you work for, could you give me a short overview of your role and also your investment strategies and if these involve of any sort of sustainability credentials or green initiatives that affect investment strategy?

R: Yes, certainly. I work for, umm, an asset manager, a generalist asset manager uh that invests into a range of asset classes. So, not simply umm real estate but infrastructure and various other elements as well. Umm, from a real estate perspective we are umm invest in effectively all parts of the capital stack. So we invest into REITs, we invest into the public equity side, we invest into the private equity side, which is the part that I work in. Umm, and we are also investing on the debt side as well. So, actually lending money to people who are sort of buying assets. Umm, from a

I: Okay.

R: Sorry…

I: No no, carry on.

R: So, from a sustainability perspective, umm, we don’t have a sort of specific fund that is just a pure sustainability fund. Umm, what it is however is, we have sustainability metrics umm that apply to all our funds. Umm, and that is an integral part of the investment process. It’s not a, it’s not a stand alone part it’s, it is very much part of our understanding of risk when we are going out an investing. Umm, and that, that is across from the balance space even out to the more value add opportunistic side which is probably taking on more development risk.

I: Okay. And, umm, do you umm, as part of those funds, do you undertake environmental reporting of some type?

R: Yeh, so across all our funds umm we do umm the GRESB reporting. Umm, and then.. that’s on an international level we do that. Umm, and then in various countries they’ll have other types of requirements like EPC requirements. I think that the main one for our business is GRESB.

I: Okay. Umm, and do you… is the reason you do that to report to investors, umm, on your sustainability initiatives?

R: Yeh, It’s… I think from our perspective GRESB is kind of table stakes now. Umm, its something that if you are to be taken seriously as an asset manager, I think investors are, investors are just expecting you to provide that transparency. Umm, and I think a lot of investors recognise that there are probably issues with GRESB with that fact that it is focused more on data, as opposed to actual, or whether your portfolio is sustainable or not. But really, what it enables is a conversation, umm, and that’s something that, it actually provides us the tool so we can sit with our clients and say look, we’ve done well because of X. We are not doing well because of Y and this is how we are looking to deal with it.

Page 66 of 73


I: That’s interesting actually, because that has come about from a lot of the comments, I have had is that umm…. The umm…. Oh god, I’ve forgotten what I was going to say now. Forgotten the rest of my sentence.

R: Issues of GRESB?

I: Yes. That its sort of… that it’s the same with BREEAM and the environmental reporting that because it boils it down to a tick box approach. It almost makes it less valuable, if you see what I mean?

R: I don’t know. So, I fought against it for a really long time. Umm, I was pretty anti it. Umm, and I think one of the reasons why historically I was pretty anti it, is that my strategy is a lot more low risk. We are not… All my properties are let to single tenants with FRI leases and so therefore, I don’t get access to the data. And so, while, while my portfolio itself might actually be more sustainable, umm, I’ll always score more badly umm, and I will always get ribbed every year by the team here. Abuse globally from people who say [NAME], why is your portfolio so bad? Umm, that’s good but the problem is because I don’t get access to the actually data. Now, historically that was an annoying thing and also it was disappointing in the fact that you could have a awful fund that was really really unsustainable fund, but if you collect all the data you score really really well I guess what we need as na industry is, we just need the data. As we haven’t had the data, we need to encourage people to provide the data so that at some stage it’s gonna turn because everyone will be collecting the data and then you will be able to say, aha, this is actually how sustainable particular things are. I think it’s the start of a growing process for the industry.

I: Do you mean to sort work much more closely with, with the tenants as a sort of agreement when you lease it that they, you will work together every year to report out environmental data?

R: So, that is certainly something we do. Umm, because we can’t, we can’t force the tenants to give us data. Umm, we’ve got our sustainability team who have all of our main tenants and basically just asks them nicely to provide it. I think certainly one of the issues I had in the past, umm, is that, I think a lot of tenants say that sustainability is very important but as soon as you start to try and put clauses in the lease saying and you have to provide X data, you automatically get a push back. Umm, even from companies that re themselves actually pretty sustainable. Umm, so just trying to get that relationship bit right, that is going to be pretty important in the industry.

I: Ye, okay, so then, umm, my next question was do you think that the reputational benefits of green investment are quite a strong driver towards the increase in sustainable investment?

R: Yes, it’s, I think…. Absolutely. It’s something that investors really really want and umm if you are not providing that information, umm, it doesn’t make you look so good. Does that make sense? Absolutely, it does play into reputation. I think, I mean I guess form my side… Call it what it is, from a sales side, that is very very important but it’s not just simply that because it’s, certainly from my perspective, it’s more of a risk management view of having assets that are less likely to lose value over a period of time, that kind of plays into it. Yes, it is the facing up to a client bit but there is also the actual protecting your returns in the long term.

I: Okay, umm, and do you think that investor appetite for green changes on whether we are in a strong market or not? It becomes less important if returns are becoming more difficult.

Page 67 of 73


R: I don’t know. It’s difficult to see. Umm, probably… I don’t think the two are linked. Umm, in my view. And that is just thinking about how I have seen over the last few years the growth of it and that hasn’t seen any correlation with the market from what I can tell. Though it certainly, with the wider UK real estate market, the desire from investors on the sustainability side is not seeing the same level of cooling. Umm, I think that the challenge is investors aren’t prepared to take a lower return. That’s a really really big issue from my side because it… I am sat there going right, I’m looking after someone’s money. A tenant is not going to pay me more rent because I’ve got a sustainable building an investor, if I turn around and say you know what, I have given you a return X and I would have given you a return of X + 25 bps or so but we have taken a more sustainable strategy, there is no investment appetite at the moment from clients for you to actually take that lower return.

I: Yeh, and I suppose if you were going to say, if they took the lower return, they would want to see exactly how much they have done to save the planet, for that lower return.

R: They, they are asking that anyway. They are very much pushing, right how much are you doing, what are you doing. Almost a cost neutral perspective. Now, this is the interplay between playing a long, doing long term investment or short term investment and investors always say they only care about the long term, until you deliver a bad quarters return. Umm, the investing in a more sustainable, paying more for a more sustainable building is probably going to harm you in the short term from a performance perspective but it is probably going to pay out well over the long term. It’s just getting that balance right, umm, thus giving investors what they need.

I: So, yeh, so in the survey, when asked whether green investment is less risky, you said, you answered somewhat agree. Can you expand on that a little bit? I think you have sort of covered it a bit.

R: Yeh, I think… When I said somewhat agree, I think there are sort of two elements to that. One is umm, I don’t think clients are, I don’t think tenants are paying more rent for a more sustainable building. I think it should, they should reduce risk in the future with regards to legislative changes or being hit like that but there is also the rogue factor of, who knows, in five years time, stuff that’s sort of C rated now could all of a sudden be off the scale all because the market has moved on so much, umm, that actually future change might change what you actually tried to do now. So, I think there is certainly a great degree of uncertainty.

I: Yes exactly. And spending huge amounts of capital and possibly doing the right thing for the future is maybe not what the investors want to hear.

R: Yes. And this… We take that when having chats with colleagues now. We can spend X to deal with Y problem but, is that, are we just wasting the money. Are we just moving the chairs off the Titanic cos of all of a sudden we are going to have X issue come through? Certainly greater, having greater certainty and greater understanding of the direction of travel, it really really really helps from an investor perspective.

I: Yes, so actually, umm, very few of the respondents, including yourself, said that they thought, umm, green buildings, either new or refurbed, would receive a higher rent.

R: They just, they just won’t. I mean, I have seen no… and this is something I care about a, passionately but b, from an academic perspective I find it fascinating. I am always out trying to find the data points, umm, I think you can probably point to arguments that maybe say a green building will let faster but we haven’t moved to a world where lets say, tenants are looking at things from a total occupational cost piece, so they are not sitting there saying we’re saving X on water and Y on electricity, guess what mister landlord, because we are

Page 68 of 73


not paying as much there, we are going to give it to you. We are simply not seeing that dynamic. That might change if we move into a position where people stop building stock and let’s say, the office stock reduces and it goes, stuff starts to become more competitive, maybe the whole total occupational cost thing will come into play. But I haven’t seen any evidence of it now.

I: Mmm, yeh that’s interesting. Umm, another point that is raised in a lot of the research is that, not that I agree with this, is that new builds are green to a certain extent anyway. So, you’ve got a prime yield and a prime rent, it’s not going to be higher because it’s a slighter greener building.

R: Absolutely. One of the issues with this is that, more of a personal bugbear, is that the marketing is skewed towards building new, shiny sustainable buildings. We are not taking into account carbon, the cost of knocking down old buildings. It is much more sustainable to take older buildings and refurbish them. And yes, you might have lower sort of EPCs scores, but actually, from a long term sustainable perspective of going and buying lots of concrete and glass and stuff like that. That’s not taken into account in the market dynamics we’ve got there. So, everyone will sit there and say I’ve got a green, sustainable building but you just knocked down a perfectly good one.

I: Yeh… Okay, Umm, I’ve sort of jumped around my questions a bit, so I’ve just got to make sure I’ve covered everything. Umm, so obviously, everything we’ve spoke about, my next question was to ask you about the risk premiums, uhh, on both new and refurbed green buildings, which surprisingly, quite a few of the respondents said they thought there was a risk premium even though they didn’t think there was a high rent. Umm, but obviously, you said you didn’t think there was.

R: Uhhh, I don’t think there. Certainly…. I think the only premiums I ever applied or discounted has been on, let’s say, if we are buying something that is an F or G rating, umm, cost sometimes you do buy F or G ratings, umm, because also a lot of that is controlled by the tenant as oppose to you. Umm, what we have done is, we have either specifically taken the cost of converting it to a C off what we bid, or basically said, actually, you know what, we’ll just try and take that into account in our own IRR, so we are kind of applying a bit of a brown discount and that way, in our numbers.

I: Yeh, okay. Umm, and then, I don’t know if you can remember the answers you gave, but on the survey I asked, I gave a list of factors on the survey and, umm, for refurbished buildings you said that they wouldn’t, a refurbished building, to bring it, to make it green, would only benefit from reduced operating costs and it wouldn’t benefit from any of the other factors, including sort of, umm, reduced voids, or future proofed. Umm, so you think it would only reduce the operating costs, and it wouldn’t add value if you refurbed, did a basic refurb or did a green refurb.

R: I don’t know. I’m probably just feeling overly cynical about tenants.

I: Maybe. Having a bad day when you filled in the survey.

R: Well, no, I don’t know, it’s… I think there could be an argument for it but again, I think it probably depends on the market, so if the tenants can do. If there is plenty of stock out there and landlords are, sort of, wanting to give stuff away, then its just going to disappear. Umm, whereas, if there isn’t…. I think, coming back to your question before about say premiums in different parts of the market, that might probably come more into account there about whether, if all of a sudden, the Slough office market is really hot and tenants are waiting to

Page 69 of 73


get in there, that type of stuff could come into play but if it’s harder and landlords are finding it harder to dispose of space, they’d come in less so.

I: And, umm, my final question, is really about appraising investment and valuing green factors, from your point of view, not necessarily from a risk premium point of view. But how they affect your decision to invest

R: Yes, so we’ve got a, we’ve effectively got a standardised, I realise that I am just talking about risk screening here as appose to pricing screening, but we do have a standardised risk screening model for sustainability and other elements and then what we will try to do is incorporate that within our general risk return understanding of the asset. Effectively, what we will… the real challenge for us is are we being paid for the risk that we are taking. That comes down to a number of qualitative and quantitative factors. We will certainly, we will do out best, to try and take this into account with those numbers. Umm, I think that’s probably a slightly grey area. Its easier, say, if there is just a pure EPC element then you can sit there and go, right, get someone to price up how much its going to be from X to Y. Umm, so we’ll take that into account. And then, from a more, binary perspective, there’s just plain, umm, sector screening. But that’s probably more, more of sort of a social perspective as oppose to a sustainability perspective.

I: Okay, umm, well I think that it, actually, that’s all of my questions. Unless you have anything else to add.

R: No, nothing that I can think of.

I: Well, thank you very much

Page 70 of 73


7.7.Appendix 7: Ethical Review Form for Research Projects Involving Human Subjects

To be completed by the student

Student: Fiona Day Project Supervisor: Fiona Firth

Programme: MSC Real Estate Year of Study: 2018 - 2019

Project Title: Do green buildings benefit from substantial risk premium advantages compared to non-green buildings?

Start Date: 1st June 2019 Completion Date: 22nd August 2019

Aims/Objectives of Project:

Aim and Objectives

Aim: With the growing awareness of climate change leading to an increase in green

buildings, the aim of this research is to examine the importance placed by investors on a

property being green, if investors consider green buildings to benefit from substantial risk

premium advantages and, if so, identify the factors that contribute to this the risk

premium advantage.

Objectives

1. Explore investors definition of a green building

2. Examine whether a property being green impacts investor purchasing decisions

3. Identify factors that may combine to create a risk premium advantage when

investing in green buildings

4. Explore whether green factors can be separated from other factors in investment

decisions

5. Examine whether both new build and refurbished green buildings benefit from

similar advantages

Briefly describe the Project:(Stating where it will take place, whether it will involve interviewing, observing or assessing human subjects).

The project is concerned with identifying advantages of investment in green buildings and if these advantages contribute to a reduced risk premium.

Surveys were undertaken, followed by interviews.

Please give this form to your Supervisor before completing form RE02 together.

Page 71 of 73


7.8.Appendix 8: Checklist for Ethical Review of Projects Involving Human Subjects

To be completed by the Student and Supervisor together

Please indicate your responses

Y (Yes) N (No) NA (Not Applicable)

Please enter further information

1 Is this project to be undertaken by one student?

Y Name of student : Fiona Day

2 Is this project to be undertaken by a group of students?

N/A Names of students

3 Is partnership/collaboration with another institution involved?

N Name of institution

4 Has another Ethics Committee scrutinised the project?

N Ethics Committee & date of scrutiny

5 Could any situation of risk or insurance claim arise during the project?

N Sources of risk

6 Have actions been taken to minimise foreseeable risks?

N/A Actions taken

7 Have approaches to selection of participants/respondents been identified?

Y Approaches taken. Respondent selected from within target demographic

8 Has accountability for obtaining informed consent been addressed?

Y Name of person responsible – Fiona Day

9 Have information sheets/informed consent forms been developed?

N Brief details

10 Will participants experience psychological, social or physical discomfort?

N Brief details

11 Have actions been taken to reduce risk of discomfort?

N/A Actions taken

12 Does the project involve the use of specialist techniques?

N Techniques involved

13 Have any training needs been identified for the student?

N Brief details

14 Has the student been referred to relevant professional guidelines?

N Source of guidelines

15 Have actions been taken to safeguard data confidentiality & anonymity of participants?

Y Actions taken. Data stored securely. Names not mentioned in project

Decision of Supervisor

Refer to Faculty Research Ethics Committee

Yes/No

Signature of Supervisor

____________________________________

Date

Page 72 of 73

Documents

Introduction€¦ · Web view2021. 8. 6. · You don’t really, you know you don’t have a product. You’re not Coca Cola. You don’t have a sense of who you are, you know,